Now we have a very speculative thought: take stock of the manufacturer of software for automation UiPath (NYSE: PATH), to earn income on the capture of jobs by machines.
Growth potential and duration : fifteen percent for 18 months,31 % for 3 years,10 % per year for 15 years.
Why stocks can go up: branch of the company is very promising.
How do we act: take shares at the moment 64,75 $.
No guarantees
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And what is there with the author's forecasts
What the company makes money on
UiPath is a platform for workflow automation software. How it looks, can be seen on the company's YouTube channel.
The company has recently been listed on the stock exchange: it went to IPO on April 21 2021. So the main source of data on UiPath will be its registration prospectus. The company's revenue is distributed as follows.
Licenses — 56,94 %. The gross margin of the sector is almost eighty-eight percent of its revenue. Sale of the right to implement company software - as for a limited period, as well as on a fixed basis.
Technical support and service — 38,26 %. Sector Gross Margin — 89,59 % from its proceeds. The name of the section speaks for itself.
Services & More — 4,8 %. The sector is unprofitable already at the cost level, the price of providing these services is almost nineteen percent more than revenue. Software optimization at customer enterprises, also services for the education and training of employees in these enterprises.
The company's clients come from a variety of industries.. Here is a list of the companies she serves: Adobe, Applied Materials, Chevron, Chipotle Mexican Grill, CrowdStrike, CVS Health, Deutsche Post DHL, EY, Generali, KDDI, SBA Communications, Takeda Pharmaceuticals и Uber Technologies.
UiPath Serves Eighty Percent of Fortune 10 Companies and Sixty Three Percent of Fortune Global 500.
The geographic cross-section of revenue looks as follows:
- America - forty-three percent. In this sector, the United States provides thirty-nine percent of all revenue;
- Europe, Middle East and Africa - thirty-one percent;
- Asia-Pacific - twenty-six percent. In this sector, fourteen percent of the company's total revenue comes from Japan.
The company is unprofitable.
Annual revenue and profit, million dollars
| Revenue | Profit | Income margin | |
|---|---|---|---|
| 2018 | 148,47 | −261,65 | −176,24 % |
| 2019 | 336,16 | −519,93 | −154,67 |
| 2020 | 607,64 | −92,39 | −15,21 % |
Revenue
2018
148,47
2019
336,16
2020
607,64
Profit
2018
−261,65
2019
−519,93
2020
−92,39
Income margin
2018
−176,24 %
2019
−154,67
2020
−15,21 %
Quarterly revenue and profit, million dollars
| Revenue | Profit | Profit Margin | |
|---|---|---|---|
| 2 kV. 2020 | 139,38 | 4,99 | 3,58% |
| 3 kV. 2020 | 147,29 | −70,80 | −48,07% |
| 4 kV. 2020 | 207,88 | 26,26 | 12,63% |
| 1 kV. 2021 | 186,22 | −239,66 | −128,70% |
Revenue
2 kV. 2020
139,38
3 kV. 2020
147,29
4 kV. 2020
207,88
1 kV. 2021
186,22
Profit
2 kV. 2020
4,99
3 kV. 2020
−70,80
4 kV. 2020
26,26
1 kV. 2021
−239,66
Profit Margin
2 kV. 2020
3,58%
3 kV. 2020
−48,07%
4 kV. 2020
12,63%
1 kV. 2021
−128,70%
Arguments in favor of the company
Very, very promising sector. True promising. I wanted to do a detailed review of this company even before, how she entered the IPO last spring. But didn't have time. Today I was going to do a review of UiPath with a bunch of smart graphs and with the note, that the company is not listed on the St. Petersburg Stock Exchange, but, turns out, she is already there.
You need to invest in these stocks literally "because, what robots ". We already had ideas on this topic: Rockwell Automation и Cadence Design Systems. But here is something to add..
Number of routine, easily automated work is gradually decreasing due to the introduction of technologies. Labor intensity among companies S&P 500 at 70% off, than in 1986: if then per million dollars of revenue at the enterprise from the index there were 8 workers, now there are only about two. Manufacturing enterprises are actively investing in improving the efficiency of their businesses in order to increase marginality, that is, automation is a natural and inevitable process.
The pandemic will only accelerate these processes: when robots work in factories, factories can work more or less well, even when the economy is kind of quarantined. Pharmaceutical company Eli Lilly has invested heavily in manufacturing automation, to optimize the production process of the coronavirus vaccine.
The development of online commerce also contributes to widespread robotization.. The warehouse robot market is also showing great progress.: expected to grow from $27.8 billion to 2020 up to 47.4 billion 2023. Business environment for UiPath, no matter which way you look, is going great - the company can count on further revenue growth.
Priority priorities. In terms of labor automation, the United States is far behind Singapore and South Korea.. Basically, it's not that scary in and of itself., but in robotics and other science-intensive industries, the gap with the United States is rapidly closing China, unloved by Washington.
On this topic in America last spring, even a huge 750-page report authored by the AI National Security Commission came out., where it talks about, how China will beat the US in the technology race, and therefore it is necessary to invest a lot in appropriate technologies. The commission includes representatives of Oracle, Microsoft и Amazon. The appearance of such documents at the highest level in the United States is symptomatic and indicates that, that a decision has already been made at the top to support the development of technologies. A concerned tone of the report and its publication are needed, to properly tune the electorate: Americans are very easy to "catch up and overtake".
All this creates a positive speculative background for UiPath quotes.. Firstly, companies can get fat contracts. Secondly, American authorities, probably, will stimulate the adoption of automation by many enterprises through grants and other tools. By the way,, the current US tax code is structured like this, which already motivates many enterprises to automate business processes.
Maybe, in the future, enterprises are waiting for grants and deductions for automation - by analogy with electric cars and biodiesel. Thirdly, capitalization of companies can be strategically pumped up for reasons of increasing the prestige and investment attractiveness of automation - also, as it was with Tesla and similar companies. The last point sounds highly speculative., but i still think, that it should be taken into account. And he again explains the current exorbitant price of the company.
Tactical considerations. Rising labor costs and shortages are driving companies to invest in labor automation simply for economic reasons.. At the same time, factories in the USA are loaded and do not stand idle for no reason.. Many US companies are planning to significantly increase their investment in the renewal of fixed assets over the next few years.. So what can you expect, that a significant part of their investment will go to improving the efficiency of existing production facilities through technology. All this creates a good environment for the company here and now., and not in the distant future - the demand for its solutions is already in the current circumstances.
There is a purchase option. Certainly, the unprofitability of the company, combined with a capitalization of under $33 billion, does not contribute to increasing the attractiveness of this business in the eyes of a potential buyer. But UiPath has a reason to build a successful business..
Revenue retention rate — 145%. The company is making so much money from its existing customer base., that this more than covers the losses from the departure of users. This is very important, because almost all of the company's revenue comes from renewable and renewable contracts, so in the future she will not have to spend so much on attracting new customers.
The company employs experienced salespeople. UiPath has been gradually increasing revenue over the years, from existing customers. Here are examples: in a year and a half of using the company's software, one pharmaceutical company increased the volume of orders by 32 times, Canadian government agency increased order volume by 69 times in 2 years.
You should also take into account the high level of excitement around the labor automation sector..
I wouldn't be very surprised, if the company was bought by some large conglomerate like Honeywell.
What can get in the way
Price. According to the company's estimates, its core market will reach $30 billion by 2024. The problem is, that the company is already worth more than its market — almost $33 billion. If you look wider and include generally all-all-all solutions for enterprise automation, then the company's market will be somewhere around $60 billion. This sounds better, but the problem is, that the company is now worth almost half of its target market, and takes up less than 5%. All this makes UiPath stocks extremely vulnerable to a possible correction.. And of course, this reduces the possibility of buying a company at a price significantly higher than the current.
Unprofitableness. UiPath is unprofitable, and incomprehensible, when it becomes so. This gives rise to the following problems:
- Volatility. Unprofitable companies are a priori volatile. But now, in a period, when everyone expects a raise, these stocks threaten to become even more volatile.
- The company is motivated to issue new shares to finance operations, which can lead to price drops.
- Bankruptcy risks are extremely urgent.
Altered carbon. Automation of labor is a disadvantage for most workers and the electorate. Therefore, in the coming years, we can wait for the actualization of the public discussion about, how "robots are taking over jobs", with bad consequences for the quotes of companies like UiPath.
Everything can go a little wrong. Share prices could fall sharply from current levels, after which the company will receive an offer to purchase. In this case, we will be either in the red, or a very small plus. You need to be mentally prepared for this outcome..
What's the bottom line?
Certainly, ideally would like to take these shares at a much lower price. But my experience is that, that such a fall can be expected indefinitely. Therefore, considerations of the prospects of the UiPath segment and the desire to capitalize on the hype in this area outweigh the possible problems from stock fluctuations due to their current high cost..
So take stock now 64,75 $. Then there are three options:
- wait, when will the shares be worth 75 $. I believe, that it would not be a big audacity to wait for this result within the next 18 months;
- wait, when they hit their all-time high again 85 $, achieved in May. Think, it will happen in the next 3 years;
- keep stocks close to your heart for the next 15 years. This is the most preferred option., since the consequences of various seasonal stock exchange events are leveled over a long distance.
The idea is very volatile, and if you are not ready mentally, that these stocks will shake, and do not want to endure the risks of bankruptcy of the issuer, it's better not to take these shares. But if you reproach yourself for that, that they did not invest in Tesla at the very beginning, then, maybe, this is an idea for you. Should only be understood, that investments in Tesla at the start looked exactly like this: seems to be promising, but the risks seem to be huge..
