Financials = Fun & Shoals - The Case of UiPath Inc. (PATH)
Financials can be Fun & Shoals of (not herrings but) airings - of Grievances & Opportunities.
On April 21, 2021, Heather Somerville wrote in the Walt Street Journal, "Deal flow and valuations are reaching new heights in technology startups, as a flood of cheap cash fuels efforts to find the industry’s next big winners, from software to social media. The same article added, "Investors are offering startups five times—or more—the amount of money they are asking, and deals that used to take months now sometimes close in days, according to venture capitalists, deal makers and founders." Tough to believe it was just a year and a half ago. Here is the good news. The days of inflation, cash erosion and starvation, and growth stocks repudiation, will in turn fade at some point.
In the same issue, the Journal indicated that shares of UiPath Inc. (PATH) rose 23% in their market debut, giving the company that helps other businesses automate repetitive tasks a valuation of roughly $36 billion.
UiPath, founded in Romania in 2005 and now based in New York City, is one of several companies that bets on robotic process automation (RPA) and other automation solutions as a ticket to efficiency. Shares closed that Wednesday at $69, above the initial public offering price of $56. You can buy them today for $14 and change, that is, at quite a discount.
A digital army of “bots” handling repetitive, time-consuming tasks at a fraction of the time and cost, may allow companies to connect different systems and free employees and resources to do other work. Companies have increasingly digitized operations, but in silos; the real efficiency comes from connecting those islands and integrating processes. The market opportunity is huge and expanding.
The company had reported revenue of $607.6 million for the year ended in January 2021, up 81% from the previous year. It had also become free-cash flow positive in the most recent year. More recently, however, management lowered outlook based on foreign exchange rates headwinds and macroeconomic volatility, and UiPath Inc. shares dropped again, essentially double-bottoming. The stock price has fallen more than 75% over the past 12 months, while the S&P 500 index has declined 14% over that time.
UiPath forecast third-quarter 2022 revenue of $243 million to $245 million and an annualized renewal run rate, or ARR, around $1.09 billion, while analysts had forecast revenue of $269.6 million and ARR around $1.12 billion. ARR is a metric often used by software-as-a-service companies to show how much revenue the company can expect based on subscriptions.
For the year, UiPath rolled back its forecast a bit. The company now expects revenue of $1 billion to $1.01 billion and ARR of $1.15 billion to $1.16 billion, compared with its previous forecast of revenue around $1.09 billion and ARR of $1.22 billion to $1.23 billion for the year. Analysts surveyed by FactSet had estimated revenue of $1.09 billion and ARR of $1.22 billion for the year.
The company reported a second-quarter loss of $120.4 million, or 22 cents a share, compared with a loss of $100 million, or 19 cents a share, in the year-ago period. The adjusted loss, which excludes stock-based compensation expenses and other items, was 2 cents a share, versus adjusted net income of a penny a share in the year-ago period.
Revenue rose to $242.2 million from $195.5 million in the year-ago quarter, while ARR, increased 44% to $1.04 billion from the year-ago period - both rather impressive numbers given the circumstances.
Interestingly, analysts had forecast a loss of 11 cents a share on revenue of $230.7 million and ARR of $1.04 billion, based on UiPath's forecast of $229 million to $231 million and an ARR around $1.04 billion.
The days of deep undervaluation of some growth stocks shall one day pass, as well. Beware.
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