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Although tech stocks can be highly volatile, choosing the right one could mean significant gains that justify the risk.
Fortunately, we are in exciting times—there’s no shortage of tech IPOs to choose from. And that includes UiPath. The company’s unique approach to automation that many see as a viable business model poised to bring substantial revenues and hopefully profit for the long run.
If you are considering investing in this tech company, here’s some information that might help you learn more about the company’s recent IPO and if it makes sense to add its shares to your portfolio.Get started with Wealthsimple Trade. Sign up today and start building your portfolio.
What is UiPath?
UiPath, Founded in 2005 in Romania and now headquartered in New York, is a tech company that provides robotic process automation (RPA) within a software-as-a-serve (Saas) subscription model.
What’s an RPA? Imagine a company that uses legacy software applications with deprecated coding languages and obsolete servers. We’re talking EDI, COBOL and Oracle databases—yeah, the old stuff. Now imagine that these systems must transfer data back and forth to other, often newer systems like cloud-based or mobile apps.
Sometimes, the data transfer can happen with an API or application programming interface, but other times, a tad more intelligence and manual labor is involved. This is when a company may hire a data entry clerk to move data back and forth in a way that an API can’t.
Robotic Process Automation, in essence, takes the place of the manual labor that a company would hire someone to handle. It works in environments where there may not be direct access to a “back end” like a database or software application. It can read screens, use clicks and typing actions that a human would, but much faster and more accurately. Other tasks might include:
Logging into applications and systems
Moving files and folders
Extracting, copying, and inserting data
Filling in forms
Completing routine analyses and reports
Advanced robots can even perform cognitive processes like:
Engaging in chats and conversations
Understanding unstructured data,
Applying advanced machine learning models to make complex decisions.
You may see a lot of potential in this technology, but, as an investor, it still makes sense to analyze the underlying fundamentals of a company. Great technology is only one part of the equation. You’ll also want to consider how the company’s leadership makes the most out of its resources while adding value for shareholders and converting capital to profits.
What is UiPath’s current market cap?
Now that we understand the underlying technology that drives UiPath’s revenues let’s look at some of their numbers. Market cap is a useful figure because it helps investors understand the relative size of a company versus another and its value on the open market.
For companies that have not yet gone public, the market cap doesn’t apply yet because there are no shares trading on any public exchange. As an alternative metric, a private company’s valuation may give investors an indication of what the market cap might be should the company go public.
A private company’s valuation, especially a start-up in tech, can be based on the most recent round of fundraising. The valuation (preferred stock price multiplied by the company’s fully diluted shares) forms the basis of the resulting market cap from the IPO event.
As of March 2021, UiPath had a post-money valuation of $35 billion after raising a round of $750 million Series F funding a month prior. This valuation led analysts to believe that the opening share price would be $52-$54 and bring the market cap close to the company’s latest valuation.
When is the UiPath IPO taking place?
On April 21, 2021, UiPath started trading shares on the NYSE under the ticker PATH. The offering price was $56, but the company’s shares opened for trading at $65.50 and by closing bell brought the company to a $35.6 billion market cap.
Why are people interested in buying UiPath shares?
UiPath’s business exploits some trends that could mean stable growth for the tech company. According to its S-1 filing, the market intelligence firm IDC estimates that the market for intelligent process automation could hit $17 billion by the end of 2020 and $30 billion by the end of 2024. UiPath forecasts the global market for RPA to be at least $60 billion.
Simply put, investors like tech with far-reaching prospects. Robotics, AI, and automation are trends that aren’t going away anytime soon, so any company that can capitalize on these trends could be an attractive addition to a portfolio.
UiPath seems to be making progress in capturing the market share for RPA servcies. As of April, 2021, the company had over 7,900 customers, including 60% of the Global 500. As of June, 2021, it has over 8,500 customers.
UiPath stands out among doezens of recent tech IPOs on at least one front: revenues. Many of UiPath’s IPO cohorts have raised money successfully but lack business models that show sustainable revenue levels and, sometimes, multi-million dollar, year-over-year losses.
Though UiPath does have revenue and 81 percent year-to-year revenue growth, it still operates at a loss, but those losses are decreasing:
$336.2 million revenue reported for 2019 (fiscal year ending January 31, 2020).
$607.6 million for 2020 (fiscal year ending January 31, 2021).
Net losses were trimmed from $519.9 million in 2020 to $92.3 million in the most recent fiscal year.
Annual operating cash loss was $359.4 million, which has flipped to cash generation of $29.2 million.
In its last fiscal year, UiPath reported net revenue retention of 145%. This means the average existing customer increased spending by 45% from the prior year.
Compared to some more traditional sectors, like blue-chip, UiPath’s financials might not (yet) seem impressive. But for start-ups in the tech sector, their decreasing losses could signal that the company is on track to become profitable. Plus, the net revenue retention does seem promising.
As it stands, many analysts have deemed the recent IPO frenzy as wholly over-valued, as many companies are still enjoying somewhat inflated revenues and stock prices from changes in both consumer and investor behavior during the pandemic. In the end, whether or not this is a good investment opportunity depends on your appetite for risk.
How’s UiPath’s performance so far?
Even though the company had an on-target IPO, the company had a loss in the first quarter post-IPO of $239.7 million, or $1.11 a share. This report (June 8, 2021) caused the stock’s price to drop from $76 down to $69.90, or about 8 percent.
And even with this reported loss and drop in share price, the company projects revenue increases for the 2022 fiscal year—estimating revenue to come in between $850 and $855 million. This would be a 40 percent increase from the previous fiscal year.
How can I buy shares of UiPath?
As you would with any investment, read the company prospectus to understand its business model, risks, and financial projections before investing. Once you’ve done your research, the steps to invest in the company are easy:
Find a brokerage firm. Online is ideal. Your account can be opened and funded in just a few days once your personal information is verified.
Place an order for the stock according to your investment objectives: market, limit, stop order or buy stop order are common orders used to buy shares
Wait for confirmation that your order has been received and completed
Once you’ve placed your order and you are an official investor in the company, be sure to check in on your investment from time to time. Ensure that the company’s core principles and operating philosophies align with your personal convictions and investing goals. If so, you can always increase your position in the company as time passes. If not, you can always sell your shares as needed, too.
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