Skynet will one day be real and this is exactly where it starts. Probably.
In a recent episode, I talked about ARK Invest's view on workers losing jobs to automation.
Looking back, I realize I missed an important point.
My goal was to identify all of the industries that could be disrupted by
robots - dangerous jobs like arc welding, tedius jobs like warehouse part-picking,
and unpaid economic activities like unskilled farm labor, home cooking, and driving yourself
around. The thing I missed was the vast amount of jobs that could be replaced purely by software.
So, in this episode, I'd like to talk about a single company that could automate more work than
all the robots I just mentioned put together, and grow by a crazy amount in the process.
If you enjoy this type of commentary and analysis, consider liking this video and subscribing to the
channel with all notifications turned on. That way, you'll be the first to know when I come out
with new research, regardless of how YouTube tunes its algorithm. Let's get right into it.
UiPath, ticker symbol P A T H, is a software company that focuses on "RPA",
or robotics process automation. UiPath defines RPA as "a software technology that
makes it easy to build, deploy, and manage software robots that emulate human actions
interacting with digital systems and software." So, let's start there:
One thing UiPath does is make software bots to replace work done by humans through automation.
You're probably already familiar with certain types of online software bots.
For example, chatbots are the bots you find in the bottom-right-hand corner of your browser
on many websites today. The goal of a chatbot is to simulate a conversation
with a human being to answer frequently asked questions and direct you to useful resources,
eliminating the need for a human employee to do that.
Web crawlers are bots that access websites and gather content to be indexed in search engines.
Basically, they read every website they can get to and do things like figure out what's on it,
how up-to-date it is, where it links to, what other sites reference it,
how fast it loads, and many other things that help a search engine like Google
know when to put it in front of someone. Imagine giving that job to a human. Yikes!
UiPath's bots are often used to manage simple but monotonous workflows like these.
An example workflow for UiPath's bots could be parsing emails to retrieve data that
need to be entered in a bunch of other forms or applications. Here's what Daniel Dines, UiPath's
CEO, said in his S-1 Letter to Shareholders, which you can find in the description below:
"As the economy largely moved from manufacturing to services,
the need for automation shifted from industrial to business
process automation. But, despite enormous gains in computing power at our fingertips,
we witness a paradox. While today's work is largely digital, the repetitive, manual work
has not disappeared - the form of it has simply shifted. For example, today's knowledge worker
spends a vast amount of his/her time at work extracting, entering, and processing data, and
enduring the drudgery of continuously copying and pasting between a growing number of applications."
Let me know in the comments below how much time you spend at work on repetitive,
manual tasks. Is it something like 10% of your workday? 20%? 50% or more? Do
you think some or all of those tasks could be automated? I'm excited to hear your thoughts.
For me, this is the quote that made me realize my mistake from that previous episode.
When I think about robots, my brain jumps to manufacturing
and industrial applications. When Daniel Dines thinks about robots, he's thinking about emails,
spreadsheets, and forms. Actually, he's thinking about a lot more than that.
UiPath has developed an entire suite of tools for building and managing these "bots",
not just the bots themselves. Their platform incorporates different
capabilities like computer vision and natural language processing,
which lets people create more advanced automation with little to no code. As I mentioned earlier,
the goal here isn't only to put an end to repetitive tasks, but to fully emulate
human workers, at least in some roles. And that's where things get really interesting.
The introduction of the shareholder letter ends with: "While we are still in the early days
of a multi-year journey to the fully automated enterprise, momentum is growing as organizations
across the world are only now beginning to understand the power of automation." The idea
of the fully automated enterprise is why I think this company is so attractive to ARK Invest. Let
me walk you through what I think they ultimately see in UiPath when they look at least 5 years out.
Each week, ARK Invest comes out with a newsletter called ARK Disrupt, where
they highlight technological breakthroughs in bite-sized chunks. In issue #265, which came out
about a week before UiPath's huge IPO, ARK talked about OpenAI's GPT-3 language model generating 4.5
billion words per day across over 300 commercial applications. Here's the part relevant to UiPath:
"With 175 billion parameters trained on roughly 500 billion words, the model uses deep learning
for a diverse set of text-generation tasks. Given a list of ingredients, for example,
GPT-3 can generate a recipe. Alternatively, it can serve as a chatbot guiding customer support
or turning text commands into SQL code." ARK Invest's Big Ideas report also talks about GPT-3.
Here's a list of things this same AI can do: write emails, design webpages, write code in
a dozen computer languages, retrieve historical facts, translate languages, diagnose diseases,
talk like a therapist, and more. The same AI is able to do these things for the same reason
a single human can do them; because it's trained to understand language in general. And, just like
with a human, the list of things this AI will be able to do in the future will continue to grow.
When I was in grad school, the notion of general-purpose AI seemed like science fiction.
It's cool to be talking about it for real, just a few years later. I'll leave a link to that issue
of the ARK Disrupt Newsletter and their 2021 Big Ideas report in the description below, as well.
The reason I'm talking about GPT-3 is because that same big idea,
a general-purpose AI that's trained to understand workflows instead of language,
no longer seems so out of reach. UiPath's vision of the fully automated enterprise could
be realized even sooner than they expect, which, according to their latest investor presentation,
is around 2028. As you can see, the amount of artificial intelligence-based automations
and innovations UiPath offers has continued to grow exponentially year after year.
What if they could build bots that discover the processes within an organization that can
and should be automated? Software bots that build software bots to targetted at the most monotonous
jobs currently done by humans? That's where I believe UiPath is headed and Daniel Dines says as
much in his Shareholder Letter. UiPath's mission is "to unlock human creativity and ingenuity
by enabling the fully automated enterprise and empowering workers through automation".
They currently have task mining and discovery tools in public preview, which they expect to
release this year. They're putting themselves in a great position to gather the mountains of data it
would take to train that generalized workflow AI, allowing them to automate more and more processes
for their existing clients AND capture different types of NEW clients in the future.
Just like Tesla is doing with millions of cars in thousands of environments and Teladoc
is doing with millions of patients with thousands of medical conditions, UiPath could be doing this
with millions of software bots across thousands of different workflows. Workflows that touch every
kind of industry and innovation, from genomics to space. That's how the same company winds up
in ARKG - ARK Invest's fund themed around the genomics revolution -- AND ARKX, their
fund themed around space exploration. UiPath's total addressible market is just *that* big.
Let's hope they never flip the switch and cause the robot uprising. I'm just kidding.
Now that we have a basic feel for what this company does and where it could be headed,
let's talk about their financials and the stock, itself. ARK *piled* money into UiPath,
ticker symbol P A T H, the day it IPOed, which was April 21st 2021. Cathie Wood grabbed almost
$200 million dollars worth of shares on day one. Roughly 3 weeks later, on May 14th,
ARK's combined position in UiPath was over $400 million dollars and as of last Friday,
June 11th, it's over $600 million dollars, making it ARK Invest's 20th biggest position overall.
That's almost the same level of growth as ARK Invest's now MASSIVE position in Coinbase, ticker
symbol C O I N, which IPOed just one week before UiPath, indicating a massive amount of conviction
in the long-term performance of the company. If you want to see my analysis of Coinbase stock,
I'll leave it in the top-right hand corner of your screen right now and in the description below.
To me, it's obvious there is and will continue to be an insane amount of demand for robotics process
automation -- every company wants to automate workflows and reduce unnecessary human labor.
The real question I have is whether UiPath can scale to meet that demand before its
competition does. Now that they've released their latest earnings report, we can find that out!
Let's start with the numbers in Daniel Dines' Letter to Shareholders: their annual recurring
revenue jumped from $351.4 million dollars to $580.4 million dollars, a jump of 65%.
Their total revenue went from $336.2 million dollars to $607.6 million dollars, a jump of
81%. Their net loss went from $520 million dollars to $92 million dollars - a reduction by over 80%.
They had 6,009 customers as of January 31st 2020, including 80% of the Fortune 10 and 61%
of the Fortune Global 500. As of January 31st of 2021, they had 7,968 customers,
a jump of about 33%, while still including 80% of the Fortune 10 and
63% of the Fortune Global 500, meaning they're expanding their
total addressible market beyond industry titans while having relatively little customer churn.
This is growth on steroids. How is UiPath doing this? UiPath is becoming entrenched
in their customer-base. That's the growth model. UiPath lands their clients and then expands. The
company gets in the door, and over time it dramatically expands its business as it proves
the value of the technology to the customer. UiPath's dollar-based net retention rate is 145%,
meaning their customers INCREASE their spending with UiPath
by an average of 45% year-over-year. That isn't just some on-paper number.
This is happening because UiPath grows as their customers identify and expand the number of
business processes to automate, increasing the number of robots deployed and the number of users
interacting with the robots. Guess how UiPath charges its customers. Per automation and per
user. There's your exponential growth. So, what about their competition? Well, it turns out there
isn't much. Here's what Daniel Dines had to say during their most recent earnings call:
Our leadership position in the RPA market is again demonstrated by our ARR growth, which
increased 64% year-over-year to 653 million, while net new ARR record 72 million. We continue to grow
multiples of the market and take market share. In fact, for 2020 IBC announced that UiPath ranked
number one in RPA, capturing 8 points of share versus 2019. In Gartner's latest market share
research UiPath added more revenue in 2020 than our top nine competitors combined. We believe
that automation will be the next layer in the software stack... we are not standing still,
as we continue to expand our competitive moat. Our ultimate product vision is for our user,
not only to automate existing processes, but to design processes on our platform.
Not all aspects of the earnings report were great. The GAAP net loss was greater than expected
at about 240 million dollars, but the company had a positive non-GAAP operating income of 16
million dollars. This was the result of a massive stock-based compensation of 250 million dollars,
much higher than their revenue. I personally don't see this as a problem in the long-term.
The company just went public and it's normal for high growth tech stocks to compensate their talent
pool through stocks. As long as we see this number shrink year-over-year, it's a non-issue to me.
I'll leave links to their earnings report and transcript of their latest earnings call
in the description below, but I think their exponential growth trajectory and market
dominance is very clear. The enterprise robotics process automation market is just beginning,
meaning the market itself is going to grow, and UiPath is setting itself up to be very sticky,
meaning clients will have to do a lot of costly work to switch to a competitor.
A good rule to remember is when you're competing with an existing solution, your solution has to be
MUCH better to get people to switch. If Tesla wants it's full self driving capabilities to hit
mass adoption, it can't be just 5% safer than human drivers, it needs to be 50% safer if not
much more. If another competitor comes in after that, they'd be trying to displace Tesla's market
share, not just human drivers. Same with UiPath -- their future competitors will need to show
much more operational efficiency than UiPath's existing automations to get clients to switch,
not just that they're also more efficient than human workers.
UiPath's business model of getting in the door, expanding their footprint,
and building deep trenches in their customers processes, means that they're capturing more and
more customers in that growing market AND more and more of those processes per customer TODAY.
They already have stable recurring revenues from over 1100 customers
spending $100,000 dollars per year and 100 customers spending over $1 million dollars
per year with them. That's also why their annual recurring revenue is up 64% year over year.
In the future, they expect the fully automated enterprise market
to be valued at $60 billion dollars per year, but one thing I don't see a lot of talk about
is the small and medium sized business opportunities, as well
as software bots for individuals as their ecosystems increase and their
costs continue to decline. I think their final total addressible market could be a lot bigger.
I'd love to automate several different workflows in my life and I'd happily pay
something like $1000 dollars per year to do it. In fact, one such automation is with
a partnership they just expanded with Tableau, according to their most recent earnings report.
UiPath and Tableau launched a Tableau Activity which allows customers to easily utilize data
produced or retrieved by robotic automations in their Tableau reports and the UiPath
extension for Tableau which triggers a robot directly from a Tableau report or dashboard.
Tableau, which is now owned by Salesforce, is a premier data visualization tool used
in many different industries. It's also the tool I use to share my visualizations
of ARK Invest's data, like the ones I used to highlight how Cathie Wood
loaded up on UiPath earlier in this episode. I spend about an hour a week
updating these dashboards and another hour manually looking at the data in different ways.
I'm sure one of UiPath's bots could save me a hundred hours a year
inside Tableau alone, let alone the other spreadsheets I'm constantly
putting together for this channel. I can't imagine how many hours it saves
some of its biggest clients and that number will only continue to grow.
By the way, if you want to dig into ARK Invest's data for yourself instead of
hoping I cover something specific in a future episode, these interactive dashboards are now
available to my patrons on Patreon and members right here on YouTube.
How's that for a smooth segue?
But seriously, I hope this episode helped you learn a little about the growing market for
robotics process automation, UiPath's dominant and quickly growing position in that market,
why it's the only company to be in all 6 of ARK Invest's actively managed funds,
and how it totally won't be responsible for the robot apocalypse.
If it did, let me know by investing in the like button and subscribing to the channel with all
notifications turned on. That's a great way to invest in the channel that invests in you.
Until next time This is ticker symbol you, my name is Alex, reminding you,
that the best investment you can make is in you.