“…And seriously as the machines will take over most of the repetitive jobs that we have and we'll have more time to think. Finding this type of immersion will be essential for our well-being as humans because we will be so bored, will be bored to death really.”
- Daniel Dines, UiPath Co-Founder and CEO, February 2019
Software stocks have pulled back on the fear of tough comps in 2021 and relatively full valuations after a happy ten-year run for the group. The market is chasing a reopening trade or a stimulus trade, neither of which really helps directly drive Software stocks.
Yet the last decade of innovation in Technology has accelerated the pace of software product creation and reduced the time to value for new products.
As software product is created and adopted faster than 3 years ago or 5 years ago, the speed of scaling, the dynamism of the go-to-market, and the absolute size of the revenue and market capitalization potential will also set new highs on hockey-stick like trajectories.
Cometh the hour…and cue the IPO of UiPath, leader in Robotic Process Automation.
Back to the Technology Grind….
Positioned in the emotional valley between 1Q21 lookback portfolio harrumphs and a breakneck earnings season ahead, the IPO of UiPath will be a heat check of investor appetite for Tech stocks.
As the merriment and wonder of the last decade continue, the pace of innovation should flash marvels on our faces that a company like UiPath can go from $3.5M in Annualized Recurring Revenue in 2016 to ~$600MM in 1H21. How can that possibly happen? Do you remember what you were doing in 2016? Is it up 170x in the last five years?
Part of the UiPath story is undoubtedly ‘the future’. The company’s product is robotic process automation, a mouthful of buzzword that means taking manual, repetitive, keyboard warrior type tasks, and automating them so that employees don’t have to do it manually anymore. Strip all the data from invoices that come into your email inbox and have them auto-populate your Accounting systems.
Ditto for resumes into your talent management system. Ditto for grabbing data from SEC files, Street estimates, Bloomberg, anywhere else you go on a daily or weekly basis, automate the process end to end, then hit schedule. No more wasting time on menial tasks means a faster you, a more creative you, serving a business able to welcome more customers, produce more product, and create more market.
And maybe fire some people that you don’t ‘need’ anymore? Or perhaps reduce the jobs you would have otherwise brought on? That’s the touchy, society level, downside risk involved. For now, our field notes don’t surface a deluge of firing made possible thanks to UiPath, with the massive exception of UiPath itself.
In the euphoric madness that must overpopulate the halls of a company that goes from sleepy to can’t keep customers away, UiPath grew from 20 employees in 2015 to over 2,000 by the end of 2018, at which point, the CEO admits, they started to consume their own platform and enabled a massive headcount reduction. In a tight job market UiPath and peers will be hailed for helping the global economy increase productivity. In a downturn they might be blamed and hauled in front of Congress…
UiPath and its front man from Romania have become the name and the face of this industry thanks to a major leapfrog of competitors in the 2017-2018 period.
But not everything is so hunky dory for UiPath. The company added fewer customers in FY21 (Year ended January 2021) than FY20. Employee reviews are mixed and speak of over-hyped product sales. Microsoft entered this category with a quasi-free product a few years back and is attracting customer attention, especially in more budget-conscious corners of the market.
Land year ARR seems to be constant the last three years, expand year ARR has been volatile, cash collections from Deferred Revenue were flat in FY21 and cash commitments to sales commissions were also flat. These and more of the traditional ‘hot-IPO’ metrics don’t appear to be accelerating ahead of this particular IPO. We created an invoice tracker, for example, that shows decelerating momentum across the last few quarters.
In addition to charting investor appetite for Tech stocks, this IPO will be an intellectual battle between a potentially massive future, slower recent conditions, and the risk of a major new competitive entrant who not so long ago, clobbered the public equity life right out of a silicon valley star until they “ducked back down the alley with some roly-poly” acquirer (with apologies to Paul Simon).
So how does it go? How will the Future be beheld in the aftermath Present? Join us at 12:30pm today for our institutional call, to figure it out with us and see where we land. If you would like to learn more about my research team's in-depth investing research please reach out to .
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.55-1.76% (bullish)
UST 2yr Yield 0.14-0.18% (bullish)
SPX 4091-4184 (bullish)
RUT 2 (bullish)
NASDAQ 13,551-14,095 (bullish)
Tech (XLK) 136.87-145.19 (bullish)
Energy (XLE) 47.38-51.06 (bullish)
Financials (XLF) 34.37-35.52 (bullish)
Utilities (XLU) 63.85-66.94 (neutral)
Shanghai Comp 3 (bearish)
Nikkei 297 (bullish)
VIX 15.07-19.05 (bearish)
USD 91.26-92.71 (bearish)
EUR/USD 1.177-1.203 (bullish)
USD/YEN 108.43-110.42 (bullish)
Oil (WTI) 58.96-64.23 (bullish)
Nat Gas 2.44-2.71 (neutral)
Gold 1 (bearish)
Copper 3.98-4.25 (bullish)
Silver 24.34-26.11 (bearish)
Have a great weekend,
Ami Joseph
Technology Sector Head
