Thoughts on UiPath

First Romanian company on the US public equity market

Hi!

I wasn’t planing on covering an article on PATH 0.00%↑ just yet solely because I haven’t been diving as deep into how the business works. Though I feel with it’s recent aftermarket 20% drop post it’s Q2 ER this should warrant at least a big-picture inspection. It’s currently trading at $12.55 which places it at a $6.87BLN valuation. (later edit: by the time I’ve finished this it’s trading at $13.6).

Have had my eye on this company since it’s IPO though I figured that at a $30BLN market-cap, I’d much rather go with PLTR - I figured their valuation was similar at the time though PLTR has a way more compelling product and sticky business model.

I think of RPAs as sort of duct-tape for software. You can use it to screen-cap your actions and instruct the computer how to perform repetitive functions.

Take for instance a nuts-and-bolts company that would want to keep an eye on different prices it’s competitors use. They could take UIPath and instruct it to search for nuts and bolts across it’s competitors web presence (be it own website or 3rd party marketplaces). It could then compile it’s findings to an excel file. This could theoretically allow an employee that was previously hired to survey the company’s pricing models.

Theoretically - this could enable companies to place their employee’s time to more value-added activities. I suspect that’s not typically the case with capitalists but that’s beside the point.

Problem with this is that it’s inherently unstable. If you decide to automate say a SAP process, you end up hoping SAP doesn’t change the button’s placement, otherwise you gotta send in the RPA guys to fix the duct-tape solution.

While RPA solutions are quick fixes, we can see how they can create high levels of technical debt (for which you can inspect Martin Fowler’s excellent article here). That said, there are lots of industries that run on legacy software and aren’t looking to rock the boat, for various reasons. So I think that RPAs are here to stay.

Beyond that, I can envision a future where as the world’s softwares become increasingly more complex, one could find automation use-cases all the time. So I don’t think that we’ll run out of things to automate - on the contrary.

Since I already mentioned PLTR, I can see how someone would automate some insights from PLTR into-real world actions. Say, PLTR uncovers that X widget has to be changed, one could use PATH to set-up an automated e-mail to the account manager in charge of widgets, with a filled-out vendor form that just needs to be manually approved, requesting Y material from it’s suppliers.

Please excuse my rudimentary examples though - my macro-economic insights are rooted in a firm background in Monopoly and Settlers of Catan. Trade rock and sheep to buy wood in order to set-up a wood business.

Anyway, going back to UiPath and it’s future. So in an increasingly complex world with more software coming up daily, I think they’re safe from becoming obsolete.

Remember COBOL? We had to study it in 5th grade (that’s I think 12 years old?). I had no clue at the time (wasn’t paying so much attention) but I think that’s one of the reasons why east-europeans seem to have an innate grasp on technology.

Government, finance, insurance, automotive and banking industries are still heavy users. Roughly 43% of banking systems use COBOL and every time you swipe an ATM card, it executes COBOL code 95% of the time.

There are 1.5 billion new lines of COBOL programmed each year.

(Taken from TechChannel).

So I guess RPA as an industry isn’t going anywhere. There are lots of IT middle managers in corporations world wide that don’t want to rock the boat, so… duct-tape it is guys - if you’re looking at all that new-fangled tech the kids are talking about on reddit, you better stuff it, we don’t have the budget for that.

In fact, macros exist since the ‘80s - they haven’t built something the world hasn’t seen before. Though, like the iPhone, most of UiPath’s beauty comes from it’s ease of use. Since it’s a macro function with pretty GUI on top, there’s not much there in terms of technological moat. The big guys could likely throw a couple million $ and build their own. Take for example Microsoft’s PowerAutomate.

Leave it to Microsoft to emulate and then shove it down our throats in some sort of package deal. If you use MS Teams… GUH.

BluePrism, AutomationAnywhere and WorkFusion all do arguably the same thing. And some of them already provide existing automations between popular software platforms like ones built for the before-mentioned SAP.

UiPath has the name brand though. They’re the leader in terms of marketing the shit out of their platform, and in terms of attracting 3rd parties to develop RPA products for their clients. I’ve researched one of their partners here in Romania (Aggranda) and I’ve been blasted by their retargeting ads through YouTube for what felt like ages.

Also, they provide their product for free for developers so they can learn how it works. They boast about it’s no-code, drag & drop solutions - which will draw in it’s crowd of less technical people looking to automate things, all while making it easier for the higher-ups in charge to approve new ideas. Community is important, and UiPath’s attention to community is world-class. If there’s things you don’t know how to automate, someone definitely has the answer in one of the forums. That’s a massive advantage in terms of name-brand recognition.

If as an RPA oriented firm or consultancy (think Accenture or the likes) you know your team can easily find solutions on UiPath’s platform, why would you bother recommend your clients the second-best alternative? If your team’s already up to speed with how it works (having been exposed to the tech already from it’s freemium license) it stand to reason it’d be the go-to solution.

Anyway - how I see it, as long as revenue’s growing and profits are there this’ll be reflected by it’s stock price. Considering it has $1.8BLN cash-on-hand, it’s currently trading at about 4x cash. That to me is a more than reasonable price to pay for such a company. Will it rock the world and deliver something ground-breaking? Unlikely. Though it’s chances of bankrupcy are practically 0 due to it’s healthy cash position so I think it’s likely to deliver nice results for patient investors.

As well, it pays it’s (Romanian) employees handsomely, well above market rate, with some of the biggest yearly bonuses that I know of. Anecdotal, sure - but that’s sure to attract top talent. Since we’re a post-communist country, there’s lots of people that come from poor backgrounds that got the tech chops to deliver and the drive to stay with the company and earn both the yearly bonuses and the vesting stock options.

It’s most recent acquisiton of Re:infer is an interesting one from a tech-standpoint that makes sense in it’s ecosystems - natural language processing seems like a natural addition.

It’s previous acquisition of ProcessGold makes it to my knowledge the only RPA vendor that provides process mining.

StepShot — another UiPath acquisition helps with process documentation, which is a necessary step in better understanding it’s customers needs.

Together with the Cloud Elements - an API based solution that enables developers to publish, integrate, aggregate and manage APIs through a unified platform, UiPath is on the right track of providing end-to-end automation solutions.

Should we consider the IP and/or patents that these companies have, I’d say the companies’ current 4x cash valuation is really cheap for a growth stock. Yes, it’s not something that’s hard to replicate tech-wise. But coupled with it’s acquisitions, they’ve built an ecosystem of products that yes - it may be easy to duplicate.

Similar to how Xiaomi builds smartphones - it’s no top-of-the-line Samsung or iPhone. It’s the poor-man’s iPhone, and while they may dominate that niche, they’re not the industry leader. I feel UiPath’s competitors face similar problems to how they’re marketing themselves. Their USP is “like UiPath, but X”.

Do they do the same thing? Likely! But this is still very-much a sales game - and UiPath’s continuing to expand it’s sales team. It’s American public stock offering is just the icing on the cake in terms of brand recognition. People around the world recognize the US’s technological superiority, so it stands to reason the IPO has drawn interest globally - upon which UiPath’s planning to capitalize.

By comparison, BluePrism while initially trading on the UK Stock Market, has been dying to get listed on the US one. They ended up being acquired for $1.5BLN by SS&C, an american public listed company.

And the name is just brilliant in it’s simplicity. WorkFusion just doesn’t have the same ring to it. UiPath teaches computers to follow (hence, path) what you click on through it’s UI.

Who knows what the future holds - it may very well end up being acquired by some other tech giant; and one may buy it as to speculate for that. Though I think it will continue to chug along in it’s niche and eventually post GAAP profits - likely once they cement their position as the world-leader of all things RPA. With 40+ offices around the world, I don’t think they’re going anywhere.

Couple that with their recent transition to licensing it’s products for enterprises, I think it will work nicely in the global economy. And no, I don’t feel PLTR’s threatening UiPath in any way - at most, UiPath may end up providing solutions on top of PLTR.

So while initially I wasn’t planning to go near it, being traded at valuations similar to PLTR, now I am considering to build a position. If it still trades lower in the coming months, I’ll be posting an update with my buy-in price. Currently, at a valuation of $7.4 BLN with $1.8BLN cash on hand and estimating to bring in $742M revenues in 2022, I think it’s interesting.

I’ll try to get in below $18 / share - for no other reason than it being a pretty number. So there’s that - not financial advice (you’re on your own).

Really - all views are my own; not financial advice. This letter is for entertainment and educational purposes. If it’s on the internet, it ain’t necessarily true.