At the work automation software company UiPath (AWAY -3.24%) Going public in 2021, it was the third-largest software initial public offering (IPO) of all time, according to CNBC. On the first day of trading, the stock rose from its IPO price of $56 per share to $69, giving it a market cap of nearly $36 billion.
UiPath’s fiscal year ends in January, and for fiscal 2021, the year before its market debut, the company had annual sales of just $608 million. This made UiPath not only one of the biggest software IPOs of all time, but also one of the most expensive at almost 60 times the revenue.
UiPath traded at a sky-high valuation and plunged as market sentiment broadly shifted away from growth opportunities. And that means investing $5,000 in UiPath’s IPO at $69 per share was unfortunately an ill-timed investment. That $5,000 has fallen to around $1,150 as of this writing.
Data from YCharts.
Today, however, there is good news for investors. UiPath’s business has evolved in many key areas since its IPO, and it might even be worth buying for some investors now.
UiPath from the IPO until now
There are two metrics that really help investors understand the health of UiPath’s business: customer count and annualized renewal rate (ARR), which is recurring revenue.
When UiPath went public, it had fewer than 8,000 customers and its ARR for fiscal 2021 was $580 million, up 65% for the year.
As of the third quarter of fiscal 2023, UiPath had approximately 10,650 customers and its ARR was over $1.1 billion. Additionally, while the growth rate has slowed, ARR was still up 38% year over year for the period.
Aside from the valuation, a high operating loss is another thing pushing UiPath stock lower. In the third quarter, operating loss was $67 million, in line with the quarterly average since the IPO. That means its cumulative operating loss at this point is in the hundreds of millions of dollars ($303 million for the first three quarters of fiscal 2023).
If there’s one bright spot, it’s that UiPath is financially prepared to absorb sustained losses due to its very strong balance sheet. As of last reporting, it had $1.7 billion in cash and marketable securities with no long-term debt — ideal for a high-yield environment.
UiPath in 2023 and beyond
There are a few takeaways for shareholders from its brief life as a public company. First, UiPath wins customers, which is crucial. And second, even though it’s operating at heavy losses, it has the cash to sustain its growth for a long time.
That’s good, because UiPath may have a very big opportunity it’s trying to exploit. Management estimates that the addressable market is worth over $60 billion — much more than the current $1.1 billion ARR. And there’s good reason to think UiPath’s software could be in particularly high demand in 2023 and beyond.
Keep in mind that tech companies — including alphabet, meta platformsAnd Foreclosure — Lay off large percentages of their workforce as they focus on efficiency. Considering that UiPath’s software aims to automate repetitive tasks, more and more companies could be interested in this product – officially known as Robotic Process Automation (RPA).
As interest in RPA increases in general, expect UiPath to benefit. After all, the company was called a leader in gardener‘s 2022 Magic Quadrant for RPA ahead of its cloud partner Microsoft.
For this reason, I think that growth will not be a problem for UiPath in the next five to ten years. Also, as it helps its customers to work more efficiently, UiPath starts to work more efficiently.
Consider that for the first three quarters of fiscal 2023, UiPath’s revenue grew 24% year over year. But while revenue is rising, operating expenses are essentially unchanged. In other words, management could be in the early innings to rein in spending and unlock the profit potential inherent in its business, given that its gross margin is extremely high at over 82%.
Of course, UiPath still has a long way to go to prove it’s capable of sustaining profitable business operations. And that’s why this may be a stock some investors are still avoiding, even though it’s already down 81% from its all-time high.
However, for other investors looking to invest in a fast-growing company, UiPath has a major opportunity to seize, and its operating expenses finally seem to be coming under control. That may be worth a small position at today’s price.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, Salesforce, and UiPath. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
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