UiPath IPO Pricing and Valuation

Robotic process automation (RPA) leader UiPath successfully priced its initial public offering (IPO) at $56 per share. This figure surpasses the previously increased target range of $52 to $54.

The company offered 9,416,384 shares at this price point, with existing shareholders also selling 14,474,393 shares. Underwriters have the option to acquire an additional 3,583,616 shares at the IPO price.

Financial Details of the Offering

UiPath generated $527.3 million in gross proceeds from the primary share sale. This valuation places the company at approximately $29.1 billion on a nondiluted basis.

Calculations by The Exchange suggest a potential fully diluted valuation for UiPath reaching up to $31 billion.

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A Rapid Valuation Increase

The progression of UiPath’s IPO pricing has been noteworthy. Initially, the company proposed a price range of $43 to $50 per share, resulting in a nondiluted valuation between $22.2 billion and $25.8 billion.

Considering the company was valued at just over $10 billion a year ago, the final IPO price represents nearly a tripling of its worth.

However, UiPath’s situation is somewhat complex due to a 2021 private funding round that assigned the company a $35 billion valuation. This earlier figure continues to influence perceptions.

Navigating Valuation Adjustments

It’s important not to penalize UiPath for the difference between the final IPO price and the previous private valuations. The company successfully secured $750 million at a higher valuation.

Subsequently, it raised an additional $500 million at a more reasonable valuation, delivering substantial returns to nearly all its investors.

Positive Outcomes for Stakeholders

UiPath’s employees are also expected to benefit significantly from the IPO. Alphabet, through its CapitalG investment group, experienced a roughly 21x return on its $13 million investment in UiPath shares during the Series B funding round.

After observing the pricing adjustments throughout the IPO process, it’s clear that investors who aggressively inflated the company’s valuation by 3.5x within a year may have miscalculated. The underlying reasons for this are worth examining.

UiPath's Valuation: Highly Valuable, But Not Exceptionally So

Recent financial data for UiPath covers the quarter concluding January 31, 2021. During this timeframe, the company reported revenues totaling $207.9 million, alongside a net income of $26.3 million. UiPath deliberately refrained from disclosing EBITDA or adjusted EBITDA figures in its S-1 filings, demonstrating a commitment to rigorous financial reporting.

Previous analyses of comparable companies were conducted, but a crucial factor – gross margins – was initially overlooked. Considering a selection of similar businesses, Crowdstrike presents a relatively conservative comparison point. Its growth rate is slower (74.2%), its gross margins are narrower (74.8%), and its current valuation stands at approximately 43 times its recurring revenue.

Applying this multiple to UiPath’s recent annualized revenue of roughly $831 million suggests a valuation of around $36 billion. This helps explain the pricing established by UiPath’s private investors earlier in the year. However, it also raises the question of why the company was valued at only $10 billion the previous year. The difference can largely be attributed to increased revenues and shifts in cloud valuation methodologies.

Despite these calculations, UiPath’s current valuation remains below $30 billion.

What accounts for this discrepancy? The initial public offering (IPO) market conditions are a significant factor. Crowdstrike has a proven track record of exceeding earnings expectations, fostering investor confidence. This consistent performance has secured it the fourth-highest revenue multiple tracked by the Bessemer Cloud Index, despite potentially weaker underlying metrics.

With a valuation of $29.1 billion, UiPath currently holds a run-rate multiple of approximately 35x. This positions it in eighth place among all publicly traded cloud companies. Therefore, UiPath is undeniably valuable, though not to the same extent as some of its peers.

What led to the difference between the final private funding round and the IPO price? Based on close observation of the IPO market over recent quarters, it appears UiPath’s investors anticipated sustained market momentum. However, the market experienced a cooling trend following the first two months of the year. Consequently, UiPath was compelled to adjust its pricing to reflect the altered market conditions.

These investors essentially took a risk, anticipating that a late-stage, pre-IPO investment would yield a substantial return in a thriving market. This expectation was not realized.

However, the outcome isn't particularly negative. This IPO represents an unusual instance of a down-round, differing significantly from the struggles experienced by companies like Casper last year. UiPath’s IPO is better characterized as a convergence of optimistic private market valuations and more cautious public market assessments. It is not a cause for significant concern.