Robotic process automation platform UiPath filed its first S-1/A this week, setting an initial price range for its shares. The numbers were impressive, if slightly disappointing because what UiPath indicated in terms of its potential IPO value was a lower valuation than it earned during its final private fundraising. It’s hard to say that a company looking to go public at a valuation north of $25 billion is a letdown, but compared to preceding levels of hype, the numbers were a bit of a shock.
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Here at The Exchange, we wondered if the somewhat slack news regarding UiPath’s potential IPO valuation was a warning to late-stage investors; the number of unicorns being minted or repriced higher feels higher than ever, and late-stage money has never been more active in the venture-backed startup world than it has been recently.
If UiPath were about to eat about $10 billion in worth to go public, it wouldn’t be the best indicator of how some of those late-stage bets will perform.
But in good news for UiPath shareholders, most everyone — ourselves included! — who discussed the company’s price range didn’t dig into the fact that the company first disclosed quarterly results to the same S-1/A filing that included its IPO valuation interval. And those numbers are very interesting, so much so that The Exchange is now generally expecting UiPath to target a higher price interval before it debuts.
That should either limit or close its private/public valuation gap, and, we imagine, lower a few investors’ blood pressure. Let’s look at the numbers.
UiPath’s fascinating 2020
The top-line numbers for UiPath’s 2020 are impressive. As we’ve discussed, the company grew its revenues from $336.2 million in 2019 to $607.6 million in 2020, while boosting its gross profit margin by 7 percentage points to 89% last year. That’s great!
And it improved its net margins from -155% in 2019 to just -15% in 2020. The company’s rapid growth, improving revenue quality and extreme deficit reduction were among the reasons it was a bit surprising to see its estimated public-market value come in so far underneath its final private price.
But let’s dig into the company’s quarterly results — a big thanks to the reader who sent us in this direction — to get a clearer picture of UiPath. Here’s the data:
A few observations. First, the company’s falling net losses appear to stem from a moderately sharp decline in sales and marketing costs from its mid-2019 pace to a slimmer level of expense in 2020. That the company managed to keep its revenue growth ticking with less spend is impressive.
Second, the company not only managed to pop a profit in the July 31, 2020, quarter; it also managed to make far more money on a GAAP net income basis in the final quarter of 2020, which its fiscal calendar concluded on January 31, 2021.
More precisely, UiPath not only grew by more than a third from its October 31, 2020, quarter to its January 31, 2021, quarter, but it also had a nearly $100 million swing in profitability over the same period. That’s game-changing.
Recall that Renaissance Capital reported that UiPath’s fully diluted valuation at its IPO interval was around $26 billion? When we examined it before we were mostly focused on full-year numbers. That was probably too conservative. Let’s do some math now with quarterly data to see if the company feels cheap at its currently anticipated IPO pricing:
- UiPath most recent quarter (MRQ) revenue: $207.9 million.
- Implied run rate based on MRQ revenue: $831.5 million.
- UiPath year-over-year MRQ growth rate: 81%.
- UiPath MRQ gross margin: 90%.
Now if we look at current stock market comps, we spot two companies with similar growth rates. The first is CrowdStrike, which grew 74% last year, per the Bessemer Cloud Index. Then there’s Shopify, which grew 93.5% last year. Both have lesser gross margins than UiPath, and their average revenue multiple — enterprise value/annualized revenue — is just over 40x.
So! We can take UiPath’s MRQ run rate and multiply it by that number and get $33.6 billion. That’s far higher than its current price interval and far closer to its $35 billion final private valuation. If you want to throw on another 1x-2x revenues for the sake of its stronger-than-comp gross margins, you can get all the way to $35 billion pretty easily.
All this is to say that it’s easy to anticipate that UiPath will at least price somewhat more aggressively by the time things are said and done. Does that mean that our warning about late-stage valuations being extreme is wrong? Nope. It more means that UiPath, a brilliant company when it comes to recent operating results, may just about live up to its final private price.
That’s still a warning!
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