In the course of the operational activities of any business, its employees often perform simple, repetitive actions. They take up a lot of time, which can be used more effectively. This is especially evident in the work of state institutions. It would be great to entrust such routine work to robots that would save employees time and significantly increase productivity.
Since 2005 the company UiPath is engaged in the automation of time-consuming routine back-office tasks using artificial intelligence technology. UiPath filed an S-1 IPO on the NYSE on March 25. Ticker assigned to the company “PATH“. Now let’s take a closer look at how effective the company’s business model is, and what are the prospects for its shares after the placement.
But before we start, we would like to announce a new course for traders “Stock Market. Advanced Trading”, which will start this month. You can get detailed information and sign up for the course at this link.
With the advent of the first computers in the scientific and fiction literature, there are many dystopian predictions about how robots will replace humans. A number of publicists, in pursuit of popularity, scare us with the overwhelming superiority of artificial intelligence over humans. UiPath decided not to oppose the robot to people, but to make it their assistant. The company’s mission is to free employees from routine work so that they focus on business processes that are more profitable for the employer. UiPath mainly robotizes back office operations, which optimizes the operational activities of firms and government agencies.
The company’s clients are large corporations. More than half of Fortune 20 members have partnered with UiPath, for example Bank of america, Amazon, Verizon, Chevron, CVS Health other. The total client portfolio of the company is almost 8,000 legal entities. UiPath enables companies from a variety of industries to digitally transform their businesses. The COVID-19 pandemic has accelerated this trend in the developed economies of the world.
The company’s revenue is formed on a subscription basis. UiPath is ranked 50th on the CNBC Disruptor 50. It includes companies whose activities have a significant impact on market and business competition.
Thus, UiPath customers have a significant advantage in their market niche through the introduction of the company’s products. The retention rate at the beginning of 2021 reached 153%. As you can see in the graph above, the customer base is expanding exponentially. The growth of the company’s target market plays an important role in this.
Market and competitors UiPath
I would like to note that in the current period of time the business no longer thinks about whether it is worth using automation. Moreover, the owners of the companies are even thinking about how to speed up this process. In each market segment, major players compete with each other in the pace of digital transformation of their businesses. By research International Data Corporation (IDC) the market for intelligent automation of business processes in 2020 amounted to 17 billion USD. Until 2024, it will grow, according to IDC, to 30 billion USD with an average annual growth rate of 16%.
UiPath believes that such an estimate is the minimum for its addressable market until 2024. At the rate Bain & Company due to the expansion of the product line, the market can reach 65 billion USD within 5 years. In this case, the average annual growth rate will exceed 60%.
UiPath’s main competitors are Blue prism, Automation Anywhere, Softomotive and Pega… Only the latter is public and traded on the NASDAQ under the ticker “PEGA”.
Financial performance of the company
UiPath does not generate net income, so we will focus on revenue. The information on the S-1 is presented in accordance with tax reporting rules in the United States, where the fiscal year ends on January 31st. As you can see, the company’s revenue is growing by an average of 86% per quarter since 2019. UiPath’s market share grew at a very impressive rate even before the coronavirus pandemic.
Revenue for the last 12 months as of January 31, 2021 amounted to USD 607.64 million. The relative growth over the same period as of January 31, 2020 amounted to 80.76%. Growth last year relative to the data as of January 31, 2019 amounted to 226.43% altogether. Obviously, in the current fiscal year, the revenue will exceed USD 1 billion. More than 95% of this indicator is generated by subscription fees and subsequent maintenance.
We see a significant reduction in net loss from USD 517.14 million as of January 31, 2020 to USD 94.66 million as of January 31 of this year. This happened due to the increase in revenue and the reduction in operating expenses of the company. This speaks of quality financial management. With a further reduction in operating expenses and comparable revenue growth, we can see net income as early as next year.
The total amount of cash on the company’s accounts is 357.69 million USD. Current liabilities amount to USD 365.16 million, and the company’s total debts amount to USD 448.20 million. I consider the current debt burden insignificant, especially against the backdrop of business growth. There will be enough cash to cover current liabilities, which suggests a high financial strength of the company. Now let’s summarize the interim results before the final assessment of the company, weighing all the pros and cons.
Strengths and weaknesses of UiPath
Having the established picture of the company’s business, we will highlight its advantages and weaknesses, on the basis of which we will assess the attractiveness of its shares.
The advantages of UiPath include:
- High rates of revenue growth.
- Significant reduction in losses over the past fiscal year.
- Promising and fast growing address market of the company.
- Rapid growth and high customer loyalty.
- The COVID-19 pandemic has strengthened the company’s business.
- Included in the CNBC Disruptor 50 breakout companies rating.
Risk factors for investing in securities of this company include:
- High dependence on customers and strong competitors.
- The company is unprofitable and does not pay dividends.
- The company’s revenue rate will decline as the market becomes saturated.
IPO details and UiPath capitalization estimate
UiPath’s main investors are Wellington, Dragoneer, Coatue and Sands Capital. In all rounds of financing, the company raised USD 1.02 billion. The underwriters of the placement were Oppenheimer & Co. Inc., DA Davidson & Co., Canaccord Genuity LLC., RBC Capital Markets, LLC, Nomura Securities International, Inc., Needham & Company, LLC, Macquarie Capital (USA) Inc., Evercore Group LLC, Cowen and Company, LLC ., JP Morgan Securities LLC, BofA Securities, Inc., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Wells Fargo Securities, LLC., SMBC Nikko Securities America, Inc., BMO Capital Markets Corp., Mizuho Securities USA LLC, KeyBanc Capital Markets Inc., TD Securities (USA) LLC., Truist Securities, Inc.
The exact amount of the order and the price range are still unknown. To assess unprofitable companies, we use the P / S ratio (multiplier) (capitalization / revenue). For tech companies with such a rapidly growing target market, P / S could be 40.0. In this case, capitalization can reach 24 billion USD (607 million USD * 40). Given the current market sentiment, P / S may turn out to be higher. Therefore, I recommend that you consider UiPath stocks for inclusion in your investment portfolio.
Invest in American stocks on favorable terms! Real shares on the R Trader platform from $ 0.0045 per share with a minimum commission of $ 0.25. You can also try your trading skills in the R Trader platform on a demo account, for this you just need to register on the RoboForex.com website and open a trading account.