"Soothsayer: If you continue on your current path...you will find yourself...at the bottom of the stairs.
Lord Shen: That is not fortune-telling! You are only telling what's happening right..
The Soothsayer: Now?" (Kung Fu Panda 2, 2011)
We are moving UiPath Inc. (PATH) from Active Short to Short Bench.
When we launched our PATH Short in the Spring of 2021 we called out a ‘4-handle’ and ‘October’, and here we are. While we still see deceleration ahead for PATH ARR (see details below), we believe the market has caught up to the understanding that the stellar backwards-looking growth UiPath showed investors when it came public stands counter to the current obstacles in the way of wide-scale RPA adoption. We will continue monitoring the data and testing our thesis in search of future opportunities to play the stock. To see our most recent PATH data from 10/1, CLICK HERE.
UiPath: Adoption Obstacles & Future Vision
UiPath does not seem totally out of the woods yet.
Salient comments lifted from recent product reviews highlight the software’s positive utility at the core, but also make note its ever-present buggy-ness. Customers think there is something good in the product, but with all the error-fixing and adjustments required to run a UiPath environment, the product seems perhaps not yet ready for comparisons against other mature enterprise software franchises. These customer voices resonate with our original thesis work (HERE) in which we explored the limitations (and opportunities) of the product that came about in part due to the founder's quick and dirty approach to building software.
Employee comments throw a spotlight on an 'improving' product; a callout that itself shows awareness of the problem. Employees are keen to point out the excess ‘hype’ in a market (RPA) that has a growing list of alternatives including technical solutions from other products that mitigate or delay the need for a full blown RPA installation.
UiPath's product vision offers an impressive array of potential future value including creating code by mirroring humans, automation as a standard interface to a growing list of legacy enterprise applications, wide potential use across the enterprise for the citizen desktop user as daily workflow accelerator, and the enormous amounts of human-machine data that is being created in RPA environments which can be mined to shape an important chapter in Machine Learning and AI. But...all of that still wrapped in something that needs fixing.
Last Word:
Our app download and firmographics customer adoption data indicate ongoing deceleration for UiPath. Adding the data to our model gives us a view that ARR growth will step down from 60% Y/Y in F2Q to high-40%s Y/Y in 2HFY, and to 30-35% Y/Y within 12 months. We translate this to signal that PATH downside risk exists into the ~$35 range.
At the time of the IPO it seemed obvious that UiPath would have exciting long-term potential. But our work unearthed a series of questions that on whether the UiPath 'moment' was a flash in the pan, a band-aid to help IT teams overcome legacy interfaces for older applications which could pass for short term digital transformation until real application modernization was ready. The secular question is now an open one.
Ami Joseph
Managing Director
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Yosef Vaitsblit
Director
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Nick Balch
Analyst
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