UiPath (PATH 0.26%) has been a volatile stock ever since its initial public offering (IPO) in April 2021. The developer of tools for robotic process automation (RPA) went public at $56 per share, started trading at $65.50, and surged to an all-time high of $85.12 a month later.
At its peak, UiPath's enterprise value reached $41 billion, or 46 times the revenue it would generate in fiscal 2022 (which ended in January 2022). But that bubbly valuation became unsustainable as macro headwinds throttled its growth. Today, the stock trades at $25 with an enterprise value of $12 billion, or 10 times the revenue it's expected to generate in fiscal 2024.
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UiPath's stock recently rallied again as it impressed investors with its third consecutive quarter of accelerating revenue growth and stable outlook for the rest of fiscal 2024. But could it continue climbing back to its IPO price and potentially become a trillion-dollar company by fiscal 2050? Let's take a longer-term view of its business to decide.
The leader of a growing niche market
UiPath's RPA tools can be plugged into a company's existing software to automate repetitive tasks like entering data, processing invoices, and onboarding customers. It currently controls 35.8% of the global RPA market, according to Gartner, while its closest competitors each hold shares of less than 10%.
Grand View Research estimates the RPA market will still have a compound annual growth rate (CAGR) of 40% from 2023 to 2030 as more companies use its tools to improve their operating efficiency and replace human workers. Fortune Business Insights provides a more conservative CAGR estimate of 20% for the same period.
Identifying the near-term and long-term challenges
UiPath's revenue surged 81% in fiscal 2021 as the pandemic drove companies to automate more tasks and accelerate their digital transformations. Its revenue grew another 47% in fiscal 2022, but rose a mere 19% in fiscal 2023 as inflation, rising interest rates, and the Russo-Ukrainian war forced companies to rein in their spending.
As the company's growth cooled off, the rise of generative AI platforms like ChatGPT cast dark clouds over the long-term growth potential of the RPA market. The bears argued that companies could integrate generative AI tools into their software infrastructure to perform even more-advanced tasks than stand-alone RPA tools.
At the same time, tech giants like Salesforce and Microsoft beefed up their own RPA platforms with more AI features. The competition could make it tough for UiPath to expand beyond its niche market.
UiPath believes it can keep growing
UiPath believes it can maintain its competitive edge by integrating more AI tools into its RPA platform as it evolves into an intelligent automation (IA) company. Unlike RPA tools, which mainly automate repetitive and pre-programmed tasks, IA tools can sort out tasks across an unstructured work environment by analyzing and understanding existing data.
During its latest investor day last September, UiPath predicted IA platforms could boost an enterprise customer's return on investment (ROI) by 100% to 105%, compared to a gain of 58% to 63% for stand-alone RPA platforms. As this newer market expands, the company expects its total addressable market to grow from $61.1 billion today to $93.2 billion by 2025.
UiPath expects its revenue to grow 21% to 22% in fiscal 2024. That acceleration, along with its stable gross margins and rising operating margins, suggest it still has plenty of pricing power in the RPA market. But from fiscal 2023 to fiscal 2026, analysts expect its revenue to grow at a CAGR of 19% -- which would still be slower than the projected growth rates for the RPA market. It's also expected to stay unprofitable on the basis of generally accepted accounting principles (GAAP) through fiscal 2026.
Does UiPath have a mathematical path toward $1 trillion?
Assuming UiPath's valuations hold steady, it would need to grow its top line at a CAGR of about 18% from fiscal 2026 to fiscal 2050 to reach a $1 trillion valuation. That might seem achievable based on its previous growth rates and the growth potential of the RPA and IA markets, but maintaining that trajectory for 24 years could be extremely difficult as it navigates unpredictable economic and competitive headwinds.
Therefore, UiPath has a narrow but viable path toward joining the 12-zero club by 2050. But instead of focusing on that distant future, investors should see if it can successfully evolve from an RPA leader into an IA company, stay ahead of tech giants like Salesforce and Microsoft, and survive the rapid expansion and evolution of the generative AI market.
