is uipath worthy of a spot in your portfolio let's tell you everything
you need to know in five minutes my name is brian ferraldi and my name is brian stouffel
brian we recently did an hour-long deep dive into uipath here's everything that you need to
know brian for those that don't know what does uipath do so it took me a while to figure this
out what uipath does is they create robots but they're software robots and what they do is they
automate routine tasks that humans are usually doing but humans don't have to it ends up being
a waste of time because we're not actually using our creative thinking minds to do them so they can
see what's on the screen they can think about what needs to be done and then they can fill it in for
you so uipath provides a series of tools that allow these robots to do their job to free up
humans from having to do repetitive digital tasks they have tools that help to discover tasks that
could be automated build the tools to do the automation manage the automation and engage to
make sure they're all working properly in addition they have plenty of data and analytic tools that
provide governance structure and measurement to ensure that companies are getting the most bang
for their dollar spent so how are they doing well they've got a 60 billion dollar opportunity which
isn't surprising when you think about this they have annual recurring revenue of over 700 million
dollars and that has grown 60 percent over the last year they've got over 9 100 customers
globally and in the lower left hand corner we want to call out that dollar based net retention rate
144 means they're not only holding on to those 9 100 customers but on average they're spending 44
more with uipath every year that's simply incredible and look at that figure in the
lower right hand corner they have more than 1200 customers that will spend a hundred thousand
dollars or more on this product every year that tells you everything you need to know about do
customers like and appreciate this technology the answer there is clearly yes so what's the
bold case for investors moving forward well you and i both believe that this company has built
itself a pretty formidable mode that dollar based net revenue retention rate shows us that once a
company adopts these tools they have a hard time getting rid of them in addition there is a small
bit of a network effect at play here where the mall people adopt it the better the analytics and
the tools become to make these robots do their work and that just gets better and better over
time two the opportunity here is huge and growing it's a 60 billion dollar market today and there's
no doubt in my mind that 10 years from now this will be a much bigger market than it exists today
this company could grow at an above-average rate for years to come three there's a lot of skin in
the game the ceo and founder daniel dines is currently the ceo and he owns a ton of stock
it's also worth noting one of the other co-founders is the cto i love seeing that
both those early founders of this business are still involved in the day-to-day operations
given all that excitement it's important to temper our expectations by looking at the bear
case as well so what is it well first we need to consider the fact that the company offers
lots of different ways to use its product that includes cloud tools or on-premise eventually
those on-premise customers are going to need to migrate to the cloud because over the long term
it is more expensive to service those on-premise customers it's also harder to upsell them when
the company makes that transition they need to handle it correctly to make sure they don't lose
customers but investors also need to know that that will over the short term cause uh revenue
to actually go down in the long term it makes the product stickier so it's worth that transition
but it's something to keep your eye on second we need to acknowledge the fact that the company is
chasing a huge opportunity and because of that they're spending all the money that comes in
to grab that growth potential that means that they don't have any profits now we're
okay with that for the time being but we need to keep our eye on it and third some people are
concerned that growth is slowing a little bit now obviously you can't grow at 60 forever we
don't expect the company to do that at the same time if growth were too slow precipitously that
would be a sign that competition was taking away some of that huge market opportunity and it would
raise at least a yellow flag sure so how did this company score on our investing checklist
for me it got a 72. that's actually a really good score for a newly public company because
my checklist punishes comics that are new to the public market so 72 is well into my investable
category and for me my framework does not worry so much about time on the public market so it got a
10 and a half which is much better really based on the strength of that moat it's really impressive
that dollar based net retention so i think this is a very interesting opportunity so what should
investors watch moving forward and how can this company improve the number one thing would be to
watch customer growth we want to see the absolute number of customers that are subscribed to this
platform continue to grow and we want to see those that are sticking around continue to spend more
we should especially focus on that customer growth of the category that spends a hundred
thousand dollars or more per year we want that number to continue to go higher finally we want
to take a look at free cash flow this company is not yet producing profits investors should
be okay with that for now as they chase growth but eventually those free cash flow is going to have
to show up once that happens this company will become much less risky than it is today overall
i think that both of us were very impressed with uipath and the quality of the business
and we could easily see this company being a market beater from here yes it's definitely
one of the stocks that i'm going to follow and consider adding to my own portfolio even though
i don't own it right now if you want to learn more about uipath we did an hour-long deep dive
into the company where we learned everything check out the link you see on your screen to go
look at that video my name is brian feraldi and my mission is to spread financial wellness my name is
brian stoeffel and my mission is to publish the rules of finance for anyone to see brian's out