UiPath IPO Filing: Key Insights & What You Missed

UiPath's IPO Filing and Valuation Insights

UiPath, a leading robotic process automation (RPA) platform, submitted its initial S-1/A filing this week, revealing the proposed price range for its shares. The financial figures presented were substantial, although they represented a slightly reduced valuation compared to the company’s most recent private funding round.

While a public offering valuation exceeding $25 billion is hardly a disappointment, the numbers did come as a surprise given the preceding market enthusiasm.

Analyzing the IPO Valuation

At The Exchange, we considered whether this tempered valuation expectation for UiPath might serve as a cautionary signal for investors in late-stage companies. The proliferation of unicorns and the frequent re-evaluation of their worth appear to be accelerating.

Increased activity in late-stage venture capital funding has been observed recently. A significant decrease in UiPath’s valuation upon going public could negatively impact the perceived performance of similar late-stage investments.

Positive Signals from Quarterly Results

Fortunately for UiPath’s stakeholders, many analysts, including ourselves, initially overlooked a crucial detail within the S-1/A filing: the company’s first disclosure of quarterly financial results. These results are particularly noteworthy.

The Exchange now anticipates that UiPath will likely aim for a more elevated price range prior to its initial public offering. This adjustment should either diminish or eliminate the discrepancy between its private and public valuations.

Consequently, this could alleviate concerns among some investors. A closer examination of the financial data is warranted.

Key Financial Highlights

• UiPath’s S-1/A filing included its initial IPO valuation range.
• The company also revealed its first quarterly results within the same filing.
• These quarterly results suggest a potential for a higher IPO price.
• A narrowed private/public valuation gap is anticipated.

UiPath’s performance metrics indicate a strong potential for growth and market leadership in the RPA sector. The company’s ability to demonstrate consistent revenue growth will be a key factor in determining its ultimate valuation.

The recent filing provides valuable insights into the company’s financial health and future prospects. This information is crucial for investors evaluating the potential risks and rewards associated with UiPath’s IPO.

UiPath's Performance in 2020: A Detailed Analysis

The financial results reported by UiPath for 2020 demonstrate significant progress. The company experienced revenue growth, increasing from $336.2 million in 2019 to $607.6 million in 2020. Simultaneously, its gross profit margin saw a substantial improvement, rising by 7 percentage points to reach 89% during the last fiscal year.

Furthermore, UiPath’s net margins underwent a positive transformation, shifting from -155% in 2019 to -15% in 2020. This rapid expansion, coupled with enhanced revenue quality and considerable deficit reduction, contributed to some surprise regarding its eventual public market valuation falling below its final private valuation.

Let's examine the company’s quarterly performance in detail – we extend gratitude to the reader who provided this data – to gain a more comprehensive understanding of UiPath.

One key observation is that the reduction in net losses appears to be linked to a noticeable decrease in sales and marketing expenditures, moving from levels seen in mid-2019 to a more restrained spending approach in 2020. The ability to sustain revenue growth while moderating expenses is noteworthy.

Additionally, UiPath achieved profitability in the quarter ending July 31, 2020, and further enhanced its GAAP net income during the quarter concluding on January 31, 2021.

Specifically, UiPath’s growth from the October 31, 2020, quarter to the January 31, 2021, quarter exceeded one-third, accompanied by an almost $100 million improvement in profitability. This represents a potentially transformative shift.

As reported by Renaissance Capital, UiPath’s fully diluted valuation at the time of its IPO was approximately $26 billion. Previous analyses primarily focused on full-year figures, which may have been overly cautious. Let’s now analyze quarterly data to assess whether the company’s current anticipated IPO pricing reflects its true value:

• UiPath’s most recent quarterly (MRQ) revenue: $207.9 million.
• Projected annual run rate based on MRQ revenue: $831.5 million.
• UiPath’s year-over-year MRQ growth rate: 81%.
• UiPath’s MRQ gross margin: 90%.

Considering comparable companies in the stock market, we identify two with similar growth trajectories. CrowdStrike, with a 74% growth rate last year according to the Bessemer Cloud Index, and Shopify, which grew by 93.5% last year. Both companies exhibit lower gross margins than UiPath, and their average revenue multiple – enterprise value divided by annualized revenue – is slightly above 40x.

Therefore, multiplying UiPath’s MRQ run rate by this multiple yields a valuation of $33.6 billion. This is significantly higher than its current price range and closer to its $35 billion final private valuation. Accounting for UiPath’s superior gross margins, adding another 1x-2x to revenues could easily bring the valuation to $35 billion.

In conclusion, it is reasonable to expect that UiPath may price its IPO more competitively as the process unfolds. This does not invalidate our concerns about potentially inflated late-stage valuations; rather, it suggests that UiPath, with its strong recent operational performance, may justify its final private price.

However, caution remains warranted!