When work-automation software company UiPath (PATH 0.77%) went public in 2021, it was the third-largest software initial public offering (IPO) of all time, according to CNBC. During its first day of trading, the stock surged from its IPO price of $56 per share to $69, giving it a market capitalization of almost $36 billion.
UiPath's fiscal year ends in January, and for fiscal 2021, the year leading up to its market debut, the company generated just $608 million in full-year revenue. That made UiPath not only one of the biggest software IPOs of all time but also one of the most expensive at nearly 60 times sales.
Trading at a sky-high valuation, UiPath tumbled once market sentiment generally shifted away from high-growth opportunities. And this means that if you invested $5,000 in UiPath's IPO at $69 per share, it was a poorly-timed investment, unfortunately. That $5,000 has dropped to about $1,150 in value as of this writing.
Data by YCharts.
However, there's good news for investors today. UiPath's business has progressed in many important areas since going public, and it may even be worth buying now for some investors.
UiPath from IPO until now
There are two metrics that really help investors understand the health of UiPath's business: its customer count and its annualized renewal run rate (ARR), which is recurring revenue.
When UiPath went public, it had fewer than 8,000 customers, and its ARR was at $580 million in fiscal 2021, up 65% for the year.
As of the fiscal 2023 third quarter, UiPath had about 10,650 customers and its ARR was over $1.1 billion. Moreover, while its growth rate has slowed, ARR still increased 38% year over year during the period.
Besides its valuation, a steep operating loss is another thing holding UiPath stock down. In the third quarter, its operating loss was $67 million, in line with its quarterly average since going public. This means its cumulative operating loss is in the hundreds of millions of dollars at this point ($303 million through the first three quarters of fiscal 2023).
If there's a silver lining, it's that UiPath is financially prepared to withstand ongoing losses because of its very strong balance sheet. As of the latest report, it had $1.7 billion in cash and marketable securities with no long-term debt -- ideal for a high interest rate environment.
UiPath in 2023 and beyond
From its short life as a public company, there are a couple of takeaways for shareholders. First, UiPath is winning customers, which is crucial. And second, while it's operating at a steep loss, it has the cash to sustain its growth for a long time.
That's good, because UiPath potentially has a very big opportunity it's trying to tap into. Management estimates its addressable market is worth over $60 billion -- much higher than its current $1.1 billion ARR. And there's good reason to believe UiPath's software could be in especially high demand in 2023 and beyond.
Consider that tech companies -- including Alphabet, Meta Platforms, and Salesforce -- are laying off large percentages of their workforces as they focus on efficiency. Considering UiPath's software is intended to automate repetitive tasks, more businesses could increasingly be interested in this product -- officially known as robotic process automation (RPA).
If interest in RPA increases generally, it's reasonable to expect UiPath to benefit. After all, the company was named a leader in Gartner's 2022 Magic Quadrant for RPA, ahead of its cloud partner Microsoft.
For this reason, I don't think growth will be any problem for UiPath in the coming five to 10 years. Moreover, as it's helping its customers operate more efficiently, UiPath is starting to operate more efficiently as well.
Consider that through the first three quarters of fiscal 2023, UiPath's revenue is up 24% year over year. But while its revenue is up, operating expenses are essentially flat. In other words, management could be in the early innings of reining in spending, unlocking the profit potential inherent in its business, considering its gross margin is extremely high at over 82%.
Of course, UiPath still has a long way to go to prove it's capable of sustaining profitable business operations. And that's why this might be a stock some investors still avoid even though it's already dropped 81% from its all-time high.
However, for other investors looking for an investment in a fast-growing company, UiPath has a large opportunity to grasp, and its operating expenses seem to be finally coming under control. That may be worth a small position at today's price.
