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Are Recent IPO Stocks UiPath and DoubleVerify Buys?

By Nicholas Rossolillo - Apr 26, 2021 at 9:43AM

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Both companies raised a lot of cash, but investors should probably exercise some patience here.

Tech companies UiPath (PATH 2.86%) and DoubleVerify Holdings (DV 4.19%) both recently made their public debuts to great success. Each raised hundreds of millions of dollars in fresh cash that will be put to use in their fast-growing businesses.

However, the two tech stocks might be getting too hot to touch at the moment. Use some patience here before jumping all in on UiPath and DoubleVerify.

Two promising growth stories

UiPath is a business automation company. It uses a type of AI software called robotic process automation (RPA) to help organizations complete tasks. UiPath's software-based bot workers can help take care of some of the day-to-day monotonous work humans have been tasked with in the digital era. Think of RPA as a type of virtual work assistant. If RPA sounds familiar, you may have heard about it from Appian, which made a small RPA acquisition in early 2020 to grow the scope of its low-code software development platform. 

A woman in thought. A thought bubble and bag of cash are illustrated above her head.

Image source: Getty Images.

But UiPath is all-in on organizational automation, and investors are clamoring to get a piece. UIPath will raise as much as $728 million in fresh cash from its IPO (early shareholders sold an additional 14.5 million shares worth about $811 million, but those proceeds won't go to UiPath). The IPO set a price for the stock at $56 a share, but as of this writing UiPath trades at around $75 -- giving it a market cap of some $45 billion. 

In fiscal year 2021 (the 12 months ended Jan. 31, 2021), the company's revenue was $608 million, up 81% from the year prior. Gross profit margin was an incredibly high 89%, and total net loss for the year was $92.4 million. However, UiPath actually generated positive free cash flow of $26 million last year, and unadjusted net income was positive $26.3 million in Q4. Lots of new customers are being added, and the company is developing plenty of new bot functionality to increase the platform's usefulness. As a result, dollar-based net expansion was 145% last year, implying existing customers spent 45% more with UIPath than in the prior year.

DoubleVerify had a more tame public debut, but it was nonetheless successful at raising funds. The company will raise as much as $269 million in cash at an IPO price of $27 a share (again, early private investors sold some of their stakes too, but those proceeds won't go to DoubleVerify). As of this writing, the stock is trading for just over $34 a share, good for a market cap of $5.32 billion. 

The warm reception here can be attributed to the hot industry DoubleVerify operates in -- digital advertising. Specifically, the company's software helps advertisers monitor their campaigns across various formats like mobile apps, social media, and streaming TV. DoubleVerify helps detect fraud, and measures actual human viewership of a campaign, helping preserve the value of a brand's advertising spending. Given the rapid migration to digital media formats in the last year as a result of the pandemic, the company has enjoyed significant growth even though the ad industry took a hit early on in the COVID-19 crisis last spring. It called out integration with social media platforms as an area of particular promise.

Revenue grew 34% last year to $244 million, generating net income of $20.5 million. Like other high-growth firms in the digital ad software space, like The Trade Desk and Magnite, DoubleVerify uses adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to measure its bottom line. It generated $73.2 million in adjusted EBITDA last year, good for a profit margin of 30%, making this a lucrative bet on the burgeoning digital advertising space.

Buy now or wait?

It's understandable that UiPath and DoubleVerify garnered so much attention, despite recent weakness in tech stocks after an epic run last year. Both of these companies are expanding fast, and working in industries with very long growth runways ahead of them. But I'm preaching patience here, as I usually do with new IPOs. Personally, I like to wait a quarter or two before deciding to make a buy. 

I'm in no rush, especially with UiPath. It currently trades for 74 times trailing 12-month sales, meaning it has a high bar to clear in the year ahead, and I'd like to see some more guidance for its fiscal 2022 before making a move. DoubleVerify trades for 23 times trailing 12-month sales -- a lower price tag due to its slower growth trajectory, but still a premium. 

Nevertheless, I'm not writing either of these companies off at all. AI, business automation, and digital advertising are secular growth trends, and both of these newly public fast-moving concerns are worth putting on your radar at the very least. If you decide to make a purchase now, just remember to take it slow and leave yourself room to buy more on the wild dips that tend to occur with fresh IPO stocks.

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Stocks Mentioned

UiPath Inc. Stock Quote
UiPath Inc.
PATH
$18.71 (2.86%) $0.52
DoubleVerify Holdings, Inc. Stock Quote
DoubleVerify Holdings, Inc.
DV
$23.62 (4.19%) $0.95

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