UiPath's IPO and Market Position

Following a price adjustment upwards, UiPath finalized its initial public offering (IPO) last night at $56 per share. This price point exceeded the company’s revised target range.

The pricing above expectations allowed the company to inject additional capital into its financial resources through the public offering.

Competition in the RPA Market

Securing funds is particularly beneficial for a company operating within the highly competitive field of robotic process automation (RPA). RPA has garnered significant attention from both emerging startups and established corporations over the past year.

During this period, major enterprise technology providers, including SAP, Microsoft, IBM, and ServiceNow, have been actively acquiring smaller RPA companies and developing their own solutions. This activity demonstrates a concerted effort to gain a foothold in this increasingly profitable market.

RPA Market Growth and UiPath's Leadership

In June 2019, Gartner identified RPA as the fastest-growing segment within the enterprise software landscape. While the rate of growth has since moderated, the sector continues to attract substantial investment.

UiPath, recognized by Gartner as the market leader, has capitalized on this trend. The recent capital infusion is expected to bolster the company’s leading position.

Valuation Considerations

It is important to note that UiPath’s previous private funding round in February resulted in $750 million raised at a valuation of $35 billion. However, as TechCrunch highlighted, this valuation surpassed the final IPO price.

Consequently, the $56-per-share offering represented a modest down-round IPO compared to the company’s last private valuation.

First Day Trading Performance

Following the IPO, broader market participation drove demand for UiPath’s stock. Shares concluded their inaugural day of trading at $69, exceeding the per-share price from the final private funding round.

Despite a somewhat complex path to the public market, UiPath concluded its first day as a publicly traded company with a value exceeding its Series F round valuation. In that round, 12,043,202 shares were sold at $62.27576 each, according to SEC filings.

The precise method of valuation, whether utilizing a simple or fully diluted share count, is currently less significant. UiPath experienced a successful debut as a public entity.

Future Strategy and Expansion

The use of the IPO proceeds remains to be seen, but it is likely that UiPath will focus on expanding its platform beyond core RPA functionalities. Pure RPA may face market limitations as companies explore more advanced automation technologies.

By integrating additional automation capabilities, either through internal development or strategic acquisitions, the company can address a wider spectrum of market needs.

Insights from UiPath's CFO

TechCrunch interviewed UiPath CFO Ashim Gupta regarding the company’s decision to pursue a traditional IPO, its commitment to presenting unadjusted metrics in its SEC filings, and the prevailing conditions of the IPO market.

The state of the IPO market was a key consideration, as some companies have recently withdrawn their public listing plans due to a challenging environment.

UiPath's Decision Against a Direct Listing Following Funding

UiPath's CEO, Daniel Gupta, emphasized the company’s position within a substantial and expanding market. He believes a proactive, or “offensive,” strategy is crucial for success.

Consequently, bolstering the company’s capital reserves in February, and again with its Initial Public Offering (IPO), was a logical step.

Gupta further clarified that the conventional IPO route enabled UiPath to specifically attract the type of investors it desired.

This approach aligns with typical procedures where companies preparing for public offerings actively seek long-term investors throughout the listing process.

A direct listing, conversely, doesn’t provide the same level of control over shareholder acquisition, as it doesn’t involve the sale of new shares and therefore limits the ability to cultivate relationships with significant, new investors.

While acknowledging that a private raise followed by a direct listing could be beneficial for certain organizations, Gupta expressed satisfaction with the path UiPath ultimately chose.

He indicated that the benefits of a traditional IPO were more aligned with the company’s objectives.

Key Considerations in Choosing an IPO

• Investor Targeting: Traditional IPOs allow companies to actively court specific investor profiles.
• Capital Accumulation: Raising capital prior to and during the IPO provides financial flexibility.
• Shareholder Control: The IPO process offers greater control over the composition of the shareholder base.

UiPath’s decision reflects a strategic prioritization of long-term shareholder relationships and financial stability.

The Rationale Behind UiPath’s Metric Choices

During a review of UiPath’s S-1 filings, TechCrunch observed the company’s decision to avoid commonly used profit metrics such as EBITDA and adjusted EBITDA, which are often viewed with some skepticism. The reason for this choice sparked our interest, particularly given UiPath’s ability to report actual, unadjusted profits in its latest filings – a distinction few recent tech IPOs have achieved.

According to Gupta, UiPath prioritizes two key performance indicators: Annual Recurring Revenue (ARR) and Free Cash Flow (FCF). It’s important to note that these are both non-GAAP metrics, however, their clarity makes their application acceptable. The CFO emphasized the significance of transparency throughout our discussion, aligning perfectly with this approach.

By concentrating on ARR and FCF, UiPath can present its performance in a manner appealing to SaaS investors, all while maintaining the provision of GAAP results and avoiding unnecessary embellishment.

This strategic approach is commendable.

Focus on Long-Term Value

UiPath’s emphasis on ARR demonstrates a commitment to predictable, recurring revenue streams. This is a crucial indicator of the company’s ability to sustain growth over time.

Furthermore, the focus on FCF highlights UiPath’s capacity to generate cash after accounting for capital expenditures. This metric is vital for assessing the company’s financial health and its ability to fund future investments.

Transparency and Investor Confidence

The CFO’s insistence on transparency is a positive sign for investors. It suggests a willingness to provide a clear and honest assessment of the company’s financial performance.

Avoiding potentially misleading metrics like adjusted EBITDA can build trust with investors and foster a more sustainable long-term relationship.

Key Takeaways

• UiPath deliberately avoids using EBITDA and adjusted EBITDA.
• The company prioritizes ARR and FCF as key metrics.
• Transparency is a core value for UiPath’s financial reporting.

Navigating an IPO in a Fluctuating Market

According to Gupta, UiPath’s investor roadshow proved fruitful, and initiating pricing at a lower range allowed for engagement with a wider spectrum of potential investors.

He further highlighted the company’s strong first-day trading performance as evidence of a strategically determined initial price point.

The core question remains: why proceed with an IPO at a time when market conditions are somewhat less favorable than they were previously?

The answer lies in the $750 million funding round secured when market conditions were optimal, bolstering the company’s financial standing.

Subsequently, evaluating the landscape for a public debut, UiPath determined that the market remained sufficiently robust to proceed.

While acknowledging a dip from February’s peak, Gupta pointed out that the market continues to operate near its historical highs.

Therefore, the decision to move forward with the IPO was deemed sensible, despite some contraction in valuation multiples for cloud-based companies.

The company’s closing share price on its first day of trading appears to validate this assessment.