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UP NEXT:
- Technology Pro Monthly Live Q&A: Tuesday 4/20 @ 2PM ET (invitation with links coming soon).
- H-TED (HedgeyeTech Ecosystem Data): Our monthly top-down pre-recorded sector data call which we use to sift the sands for new ideas, as well as changing dynamics in various sub-sectors (last month's example: HERE). April 2021 edition will hit inboxes early next week.
- UiPath New Deep-Dive Roundup (ticker PATH; projected IPO market cap of $28B; anticipated pricing Tues 4/21). Roundup to hit subscriber inboxes this week, read below for a preview.
WISH LISTS LONG / SHORT: UIPATH (PATH) - WHEN HUMANS PLAY AUTOMATION
Our Wish List is a curiosity process…a method for brainstorming new ideas.
“When they [customers] see it working is a ‘wow’ moment, they won’t go back to the way work was delivered before. You see people becoming joyful where they don’t need to do menial work every day. Imagine people having lightness from not doing same reports every day.” Daniel Dines October 2018
When we think about the future of technology and the future of work, it is hard not to envision the category of Robotic Process Automation, UiPath, and its hirsute leader Daniel Dines, as having a very large role to play. Have repetitive, menial labor to get done? RPA it. Need to solve a sticky old workflow item for the whole firm? Have you tried RPA? Like duct tape and many other quick and dirty solutions that came before it, RPA has the potential to become ubiquitous. And, unlike permanently quick and dirty solutions, the company also has the potential to evolve the bits and bytes one feature at a time until, by the time the party is really rocking, it’s not so dirty anymore, and maybe it will even be considered elegant, or sophisticated. This is our 10k foot view, and if we follow that idea to its logical out-take, that should make us bulls on UiPath...
...But it’s a little more complicated than that. Recent metrics generally seem to indicate a medium sized deterioration in momentum that is hard to ignore. And, if it was that alone, we might aver our eyes and point to passing growth digestion or Macro factors that will soon pass like an afternoon cloud revealing a still glowing warm sun. The problem is Microsoft. The entrance of this new player adds a second risk factor that, when combined with near term decelerated metrics, causes us to prefer to avoid the super high valuation which itself adds to the risk profile.
To be sure, our presentation was not one-sided. We presented the evidence, as we discovered it, across digital signals, RPA product specialist call notes, product comparisons versus peers, technology and product site revelations, employee reviews, as well as our own uniquely curated invoice tracker. A summary of the key elements of the presentation are:
- There is a fair bit of debate in technology circles about the future of the RPA market, with some considering it ‘the future’ and some regarding it as a temporary band aid that will be discarded.
- PATH has run away with the category versus incumbents like Automation Anywhere or Blue Prism, notwithstanding competitive strengths and customer strongholds for both
- Newer entrant MSFT is not directly relevant today on a work process comparison but is garnering major attention across large and small customers and can be a dangerous new competitor as the product improves
- Unpacked UiPath ARR per year and per cohort show the company has gone from zero to hero in a short period of time but expansion still remains un-even
- Waning momentum factors include community growth, app data, product reviews, *new invoice tracker, customer growth, cash collections on Deferred Revenues, cash commitments to sales commissions, and other metrics
HIGHLIGHTS & QUESTIONS FROM THE WEEK:
- Relevant Tickers: DELL, VMW. Way to go Dell! Separating Dell and VMW is a divorce filled with the best of corporate joy and happiness…‘for us to poop on’ (sorry, Triumph). As an analyst, performing a review of DELL and trying to get bullish on fundamentals, is not unlike Jeremy Renner trying to diffuse a bomb in The Hurt Locker. Each of the businesses under inspection comes with the potential to blow up in one’s face. The only bull case at its recent IPO was the implied negative or near negative enterprise value thanks to the ownership of VMW. Negative enterprise value stocks are rare, but they are Longs. VMW hasn’t been a picnic either. Cheapness and success of its salesforce have been key positives, but over-monetization of every piece of code they have ever written, and the strangling of existing customer architectures so they can never rip off the band aid, always lurked as reminders that VMW was on the wrong side of the future of software. Even overcoming these fundamental items, analysts were always left worrying that Michael Dell would need to visit his multi-billion ATM to fund an overzealous late night trip to Mamoun’s. Now, we can all celebrate. The complexity will be unwound. Let the games begin.
- Relevant Ticker: MSFT. We love when Microsoft makes an M&A splash. It just makes life so much more exciting. Google next? Bezos, you up? When we saw the deal for Nuance we thought: a) hope this is about competition in Natural Language Processing, a fundamental technology in AI, because otherwise, b) NUAN stock had been a dog for decades and the company was not long ago valued much cheaper, so why buy it now? Head-scratch. But the opinions on the deal from the tech-literati are more sanguine than we would have guessed, including:
- “I work in healthcare software and recently did a spike building a voice assistant for the EMR. We compared Google, AWS, Azure and Nuance's voice and intent recognition and Nuance blew all the others out of the water. When it comes to understanding medical terminology Nuance is way ahead of anything other providers have.”
- “It’s literally better than Siri. I don’t know how, but it is. I’d say it’s even better than Alexa in terms of its ability to recognize things I say.”
- “I think they've been at it for a pretty long time with old products like Dragon. A friend used to work there some years back and said they pretty much perfected speech detection up to some very reasonable error rate. I imagine they've just continued to cover all the dark corner cases and irregularities and accents etc.”
- “Nuance is a speech recognition company, but due to their on-premise software which has a lot of integration options and having custom distributions for medical and legal jargon, they tend to be a go-to choice for adding voice to professional highly-regulated industry platforms”
- Who knew?
POSITION MONITOR:
Snapshot view of our deep dive calls and Salient Viewpoints plus updates from the week:
HT3 PRO VIDEO | DATA & THESIS ROUNDUPS ON POSITION MONITOR NAMES:
- *NEW* NET (Cloudflare, Bench Long) – CLICK HERE
- TWLO (Twilio, Best Idea Long) – CLICK HERE
- PLTR (Palantir, Best Idea Short) – CLICK HERE
- ZEN (Zendesk, Best Idea Long) – CLICK HERE
- BIGC (BigCommerce, Best Idea Long) – CLICK HERE
- XM (Qualtrics, Best Idea Long) – CLICK HERE
- ZM (Zoom Video, Bench Long) – CLICK HERE
- ZI (ZoomInfo, Best Idea Short) – CLICK HERE
- FROG (JFrog, Best Idea Short) – CLICK HERE
- MDLA (Medallia, Bench Short) – CLICK HERE
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- SUMCO: In The Catbird Seat (3/13/21)
- SNOW: A Duration Love Story (3/6/21)
- CCX Part II (2/27/21)
- AKAM (Volume Comps Decel) (2/20/21)
- Why ORCL & SAP Should Enter A Divestment Phase (2/13/21)
- CCX: Our Research On An Oft-Discussed SPAC (2/6/21)
- 2 Long Ideas & Shifting Outlook For Shorts (1/31/21)
Innovation in equity research.
Ami Joseph
Managing Director
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Yosef Vaitsblit
Director
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Nick Balch
Analyst
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