Dmytro Spilka, a tech and finance expert based in London, and Founder of Solvid and Pridicto, shared his thoughts with Business Leader regarding the impact UiPath’s recent IPO means for the robotic process automation (RPA) industry.
In early 2021, the robotic process automation (RPA) unicorn UiPath generated a massive $750m fundraising round ahead of the company’s expected IPO. This put the valuation of the UiPath at around $35bn ahead of going public.
Since this valuation, the company has released its first IPO range, which appears to be a relatively discounted price between $43 and $50 per share. Using a rudimentary share count of 516,545,035, the company would be worth between $22.2bn and $25.8bn – a lower total than the $35bn anticipated back in February.
According to the IPO watching group, Renaissance Capital, UiPath is worth up to $26bn on a fully diluted basis – a total that’s not far off the company’s simple valuation.
This $10bn drop in valuation price will no doubt come as a disappointment to UiPath, but it appears to be a significant trend reversal from how the recent IPO market has often compounded early valuations with investor excitement.
With this in mind, could UiPath’s fundamentals find themselves getting a rigorous test against a cooling IPO market?
Living With Exponential Growth
While tech-based startups can often find themselves making losses during their formative years, UiPath’s S-1 filing seems to show a company with a solid grasp on its finances. The robotic process automation leaders appear to be growing at a rapid pace while competently addressing and reducing its deficits.
However, it’s worth noting that UiPath had some significant cost declines in its most recent fiscal year that’s contributed to making its profitability appear more positive than it may otherwise have been – owing largely to the COVID-19 pandemic.
Above we can see UiPath’s income statement for the financial years that roughly equate to 2019 and 2020. The raw financial data shows that UiPath is rapidly expanding, and we can see that the company’s gross profit grew at a faster rate in its most recent 12-month period. This combination has led to rising gross margins at the unicorn, rising from 82% in 2019 to 89% in 2020.
Financially speaking, UiPath is in a very good place – and has made a series of strategic attempts at scaling the company over the past year. In such scenarios, it can be natural for the bottom line of companies to dissipate but in this case, they haven’t.
Growth by Acquisitions
UiPath has recently looked to strengthen its hold on the industry by acquiring API integration platform company Cloud Elements. It’s the company’s intention to combine enterprise-grade user interface and API-based automation within a single platform. This move has been planned out to offer users the flexibility to automate their processes by tapping into a blend of UI-based and API-based automation.
Daniel Dines, UiPath co-founder and CEO said: “By making automation both easier and faster to deploy, the UiPath Platform has the capability of significantly improving some of the most costly and time-consuming activities of the modern enterprise. The acquisition of Cloud Elements is just one example of how we are building a flexible and scalable enterprise-ready platform that helps customers become fully automated enterprises.”
Although UiPath has shed $10bn from its company valuation in February 2021, the robotic process automation leaders have been proactive in identifying opportunities for strategic expansion without damaging the company’s finances.
With this in mind, UiPath’s avenue towards a public listing may have been made more convoluted by the wider IPO frenzy that occurred in late 2020 and early 2021, but its strong fundamentals and the potential of the robotic process automation industry looks more likely to see the company’s stock navigate the somewhat volatile market more efficiently than its rivals.
Buying Into UiPath’s Potential
Although there is some evidence that the IPO market is begging to slow down from an extremely active end to 2020, innovative tech companies like UiPath have been known to perform extremely well among investors.
With plenty of potential for robotic process automation and its increased involvement in the world of tech, there may be some heavy levels of interest among retail investors for buying into the UiPath IPO.
However, the process of investing in initial public offerings can oftentimes be difficult for individuals to do. This is often because companies prefer institutional investors to buy huge volumes of shares in a single transaction.
It’s still fairly hard for retail investors to take part in IPOs. Maxim Manturov, Head of Investment Research at Freedom Finance Europe, says that: “Historically, institutional investors get around 90% of all shares, with only around 10% left for retail trades. This is where allocation comes from: when the demand is high, the broker will have to reduce order amounts so as to at least partially fill all of them. The allocation ratio, meanwhile, depends on the investor trading activity and volume.”
Despite this, there are still chances for retail investors to participate in IPOs, with some brokers enabling individuals to apply to take part in buying shares before a company goes public. However, even with these companies, there’s normally an application process as well as a financial threshold to meet.
Despite UiPath entering into something of an uncertain IPO market, there is plenty of evidence that the company is being run in a financially sustainable manner whilst being packed with the type of technology that’s consistently struck a chord with investors. With this in mind, it may be worth keeping an eye on this unicorn’s movements ahead of hitting the market.