Where Will UiPath Be in 5 Years?

In April, UiPath (PATH +1.85%) went public at $56 per share, jumping 23% on the first day. Given the company's background, it's not surprising that investors raced to buy this tech stock. UiPath's business is built around two trendy technologies: robotic process automation (RPA) and artificial intelligence (AI), both of which have the potential to reshape the world.

However, sometimes hype drives a stock price more than the underlying fundamentals. So before you invest your hard-earned dollars, let's look more closely at UiPath and its long-term prospects. Specifically, where will this company be in five years?

Market opportunity

UiPath has a lofty mission: to enable the fully automated enterprise. To that end, its platform identifies tasks that can be automated then helps clients build, manage, and measure software robots that automate those tasks. This is known as RPA.

Image source: Getty Images.

UiPath's platform blends RPA and AI, which includes natural-language processing, computer vision, and machine learning. To understand why that's important, let's dive deeper into those terms.

RPA involves automating manual tasks like filling out forms and pulling data from documents. But natural-language processing and computer vision allow robots to understand those forms and documents. And machine learning takes that one step further by teaching robots to learn, meaning they become more intelligent over time.

UiPath's combination of RPA and AI allows clients to build software robots that learn from human behavior, which makes it possible to automate even highly complex tasks.

In other words, UiPath can transform enterprises by replacing humans with robots. This boosts efficiency by freeing people from tedious or repetitive tasks, allowing them to spend their time on more valuable activities.

Given the potential here, UiPath estimates its current market opportunity at $60 billion, but management expects this figure to grow over time.

Competitive position

Traditionally, automation tools have been built for software developers and engineers, making it difficult for the average employee to engage with or benefit from the technology. UiPath solves this problem. Its end-to-end platform democratizes automation, creating benefit for all employees, regardless of their title or technical background.

That's a significant advantage, and it means UiPath can create more value for clients than traditional RPA solutions. For instance, the company estimates simple automations could save the average employee 20 minutes per day. If an enterprise provisioned 10,000 employees with software robots, those simple automations could save the enterprise $30 million each year. That number gets much smaller if only a handful of employees can use the technology.

Image source: Getty Images.

Research firm Gartner has recognized UiPath as the leader in the RPA market, citing its ability to handle complex processes as a key differentiator. More recently, research firm Forrester also noted UiPath's leadership, citing a stronger current offering and a stronger growth strategy than any rival.

Financial performance

UiPath's best-in-class solution has helped the company win thousands of customers across a variety of industries. These include  tech giants like Adobe Systems, cybersecurity firms like CrowdStrike, auto manufacturers like Toyota, mobility companies like Uber, and restaurants like Chipotle.

In fact, the company had 7,968 customers as of Jan. 31, 2021, up from 2,671 just two years earlier. Put another way, UiPath's customer base has grown by 198% during that short time period. That has powered stellar top-line growth.

Source: UIPath SEC Filings. CAGR: compound annual growth rate.

While UiPath is not currently profitable, it did generate positive free cash flow of $26 million during fiscal 2021. That's a good sign, suggesting that its business is self-sustaining. In other words, the company won't need to issue debt or dilute shareholders to fund growth.

UiPath's net retention rate was 145% during 2021, indicating a 45% uptick in average customer spend. That speaks to its platform's stickiness; it's hard for clients to stop using it once they've started. In the coming years, that should help UiPath continue to grow quickly.

The verdict

For investors, it's important to understand how a company fits into an industry's competitive landscape. And while rivals like Microsoft are much larger than UiPath, this tech company has still achieved a greater market presence. That's impressive.

However, UiPath is a newly public company, and the public spotlight can negatively impact a business, from its culture to its financial performance. Investors should pay close attention to how UIPath handles this transition.

Given its sizable market opportunity, solid competitive position, and strong top-line growth, UiPath looks like a long-term winner. Of course, it's impossible to know exactly where a company will be in five years, but I wouldn't be surprised if this growth stock doubled or tripled during that time period.