Is UiPath a good investment? Tesla backer ARK thinks so (NYSE: PATH)

By Kirsteen Mackay

Apr 28, 2021

UiPath is an end-to-end automation software tech stock being bought by ARK Invest. Does Cathie Wood's endorsement mean this is a worthy investment?

Robotic Process Automation (RPA) sounds serious. It conjures up images of manufacturing plants, clunky machinery, and assembly lines. But RPA is much more discreet. In fact, it can be invisible. And UiPath (NYSE: PATH) is a hot new arrival on the New York NASDAQ Stock Exchange, bringing RPA to the masses.

Automation – Photographer: Joshua Sortino | Source: Unsplash

UiPath makes software robots using RPA, which increase personal productivity and streamline the mundanity of endless paperwork.

UiPath goes public with successful IPO

Founded in Romania by Daniel Dines and Marius Tîrcă, UiPath is being used across industries for a wide variety of reasons. And it seems the Covid-19 pandemic is fast tracking its implementation and appeal.

At IPO last month UiPath received a warm welcome. It was priced at $56 a share and opened at $66 raising over $1.3 billion. This was a great result, finally closing the day with a market value exceeding $36 billion. This turned out to be the third largest US software IPO in history, following Snowflake(NYSE: SNOW) in first place and Qualtrics (NASDAQ: XM) in second.

What seemed like a surreal dream 10 years ago has now become a reality?. This is our story in a nutshell, from a Romanian startup to a public company at the @NYSE. Follow our take-off mission to accelerate human achievement in this thread! #UiPathIPO #RPA pic.twitter.com/TRTaD86DdT

— UiPath (@UiPath) April 23, 2021

UiPath from humble beginnings in Romania to $39 billion automation giant

ARK seal of approval

The 21st century way of evaluating a tech stock begins with the question: Is Cathie Wood interested? And in this instance, yes, she is. ARK Invest bought 2.7 million shares in UiPath at IPO, and it appears it sold shares in Tesla (NASDAQ:TSLA) to do so. Considering Tesla is ARK’s biggest bull play, that’s quite the accolade for UiPath.

Perhaps this has something to do with the impressive growth in numbers.

Company annual recurring revenue rose 65% between January 2020 and January 2021 to $580m, while revenue grew 81%. Meanwhile, its net loss was greatly reduced from $519.9 million to $92.4 million during the same period. And free cash flow turned positive to $26 million.

Its gross margin rose to 89% by January 2021, which is the highest in software. ARK Invest has since added further $PATH shares to its ARKF, ARKG and ARKQ funds. Meanwhile, London-based venture capital firm Draper Esprit partially disposed of its UiPath holding.

Eliminating repetitive tasks

UiPath is eliminating paperwork by automating repetitive tasks. This includes filling out forms, moving files around, inputting data and scraping text from documents. But it’s not simply used on legacy systems, it’s automating a natural transition into a new way of working.

Historically, these mundane repetitive tasks were simply too small to be worth spending money on employing computer programmers to automate them. But with UiPath, the processes are effortless.

The company has developed its own technology, based on AI, machine learning and its own deep learning models behind the scenes. The result is a computer vision technology that follows user actions to interpret the task and create a solution. All this is done without having any knowledge of coding.

UiPath uses its own technology internally to advance its learning and it’s simply so useful. This is also illustrated through its impressive customer base. UiPath boasts some of the world’s biggest and best companies on its books. Facebook (NASDAQ: FB), Uber (NYSE: UBER), Google parent Alphabet (NASDAQ:GOOGL), NASA, Autodesk (NASDAQ: ADSK), HP (NYSE:HPQ), DHL (ETR: DPW) and many more.

The company has found that customer retention is not just easy, it’s inevitable as its clients come to expand the scope and size of the use cases the UiPath technology can be used for across their organisations.

UiPath calls this its ‘land-and-expand’ business model and it’s based on its ability to deliver significant value in a short space of time. This has led to a dollar-based net retention rate of 145% as of January 2021.

Taking the robot out of the human

UiPath began in 2005 and was called DeskOver. Since then, it has gradually transformed into the end-to-end automation platform it is today. In the past few years, the company has made some strategic acquisitions to extend its product offering and capabilities, from automating simple activities to becoming ever more sophisticated as time goes by. And it’s no longer pure RPA as it expertly emulates people through cognitive recognition.

A question regularly asked, when it comes to automation, is, will this replace jobs, leading to mass unemployment. The answer given by Daniel Dines is:

“Technology can change jobs for the better. For instance, farming was a massively labour intensive and tough job 100 years ago, but it’s much more fun now. And that’s thanks to advances in automation.

A $60 billion opportunity

While tech stocks had their moment in the sun last year, the appeal seems to be waning. That may not be such a bad thing, if it gives the newcomers a chance to prove themselves worthy of astronomical valuations.

In its S1 prospectus Daniel Dines says:

When humans and robots interact, the human is unburdened from repetitive, dull, monotonous tasks to think, to collaborate, to solve the hard problems we face today. It’s as though they are given wings to soar above the mundane to achieve greater things. We enable the fully automated enterprise so this can happen.

The market is huge. UiPath expect it to be worth around $30 billion by 2024. That’s a 76% rise from $17 billion last year. But if the UiPath market cap is already at $39 billion, does that make it an overvalued stock?

The company said its “fully automated enterprise” software gives it a current market opportunity of more than $60 billion.

No-code applications are hot right now and other company’s successfully raising funds in this area include private companies Webflow, Workato, Unqork and Chinese based Laiye.

Important Notice And Disclaimer

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.