>> Announcer: From theCUBE Studios in Palo Alto, in Boston,
bringing you data-driven insights from theCUBE and ETR.
This is Breaking Analysis with Dave Vellante.
>> UiPath has always been an unconventional company.
You know, it started with humble beginnings.
It was essentially a software development shop.
And then it caught lightning in a bottle
with its computer vision technology
and it's really it's simplification mantra
and it created a very easy to deploy software robot system
for bespoke departments
so they could automate mundane tasks.
You know, you know, the story.
The company grew rapidly
and was able to go public early this year.
Now consistent with its out of the ordinary approach,
while other firms are shutting down travel
and physical events,
UiPath is moving ahead with Forward IV
its Annual User Conference next week
with a live audience
there at the Bellagio in Las Vegas.
It's also fast-forwarding as a company
determined to lead the charge beyond RPA
and execute on a more all encompassing
enterprise automation agenda.
Hello everyone and welcome
to this week's Wikibon Cube Insights powered by ETR.
In this breaking analysis in ahead of Forward IV,
we'll update you in the RPA market,
the progress that UiPath has made since its IPO
and bring in some ETR customer survey data
to contextualize the company's position
in the overall market
and relative to the competition.
Here's a quick rundown of today's agenda.
First, I want to tell you,
theCUBE is going to be at Forward IV
at the Bellagio next week.
UiPath's, this is their big customer event,
it's live,
it's a physical event.
It's primarily outdoors.
You have to be vaccinated to attend.
Now, it's not completely out of the ordinary.
John Ferrier and theCUBE
were at AWS Public Sector this past week.
And we were at Mobile World Congress
in one of the first big hybrid events of the year
at Barcelona.
And we thought that event would kick off the fall
event season, live event, in earnest,
but the COVID crisis has caused many tech firms,
most tech firms actually to hit the pause button.
Not UiPath.
They're moving ahead, they're going forward.
And we see a growing trend for smaller VIP events
with a virtual component.
Topic maybe for another day.
Now we've talked extensively
about the productivity challenges
and the automation mandate the pandemic has thrust upon us.
Now, we've seen pretty dramatic productivity improvements
as remote work kicked in
but it's brought new stresses.
For example, according to Qualtrics,
32% of working moms said their mental health has declined
since the pandemic hit.
15% of working dad's said the same by the way.
So, one has to question the sustainability
of this perpetual workday
And we're seeing a continuum
of automation solutions emerging.
And we'll talk about that today.
We're seeing tons of M&A's as well,
but now in that continuum on the left side of the spectrum,
there's Microsoft,
who in some ways they stand alone and that Azure
is becoming ubiquitous as a SAS cloud collaboration
and productivity platform.
Microsoft is everywhere and in virtually every market
whether video conferencing, security, database, cloud,
CRM, analytics, you name it.
Microsoft is pretty much there
and RPA is no different.
With the acquisition of Softomotive last year,
Microsoft entered the RTA market in earnest
and is penetrating very deeply into the space,
particularly as it pertains to personal productivity
building on its software estate.
Now in the middle of that spectrum, if you will,
we're seeing more M&A,
and that's defined really by the big software giants.
Think of this domain as integrated software players.
SAP, they acquired Contexture.
They also acquired a company called Process Insights,
ServiceNow,
acquired Intellabot,
Salesforce, Servicetrace.
We see in for entering the fray.
And I would put even Pega, Pegasystems in this camp.
Software companies focused on integrating RPA
into their broader workflows,
into their software platforms.
And this is important
because these platforms are entrenched.
They're walled gardens of sorts
and complicated with lots of touch points
and integration points
and frankly, they're much harder to automate
because of their entrenched legacy.
Now, on the far side of that spectrum
are the horizontal automation players
and that's being led by UiPath with Automation Anywhere
as the number two player in this domain.
And I'd even put Blue Prism in there.
More M&A recently announced
that Vista is going to acquire them.
Vista also owns Tibco.
They're going to merge those two companies.
You know, Tibco is kind of an integration play.
And so again, I might, I would put them in that,
you know, horizontal piece of the spectrum.
So with that as background,
we're going to look at how UiPath has performed
since we last covered them at IPO.
And then we'll bring in some ETR survey data
to get the spending view from customers
and then we'll wrap up.
Now just to emphasize the importance of automation
and the automation mandate,
we talk about it all the time in this program,
we use this ETR chart.
It's a two dimensional view with Net Score,
which is a measure of spending momentum,
on the vertical axis
and market share,
which is a proxy for pervasiveness in the dataset.
That's on the horizontal axis.
Now note that red dotted line.
It signifies companies with an elevated position
on the net score vertical axis,
anything over that is considered pretty good, very good.
Now this shows every spending segment
within the ETR taxonomy.
And the four spending categories
with the greatest velocity are AI, cloud, containers and
RPA.
And they've topped the charts for quite a while now.
They're the only four categories
which have sustained above that 40% line consistently
throughout the pandemic and even before.
Now, the impressive thing about cloud of course,
is it has both spending momentum on the vertical axis
at a very large share of the market share
of presence in the dataset.
The point is RPA is nascent still.
It has an affinity with AI
as a means of more intelligently identifying
and streamlining process improvements.
And so we expect those two
to remain elevated and grow to the right together.
UiPath pegs it's TAM to the available market at 60 billion.
And the reality is, that could be understated.
Okay. As we reported from the UiPath S1 analysis we did
pre IPO.
The company at that time had an ARR,
Annual Recurring Revenue of $580 million
and was growing at 65% annually.
Had nearly 8,000 customers at the time,
a thousand of which had an ARR in excess of a 100K
and a net revenue retention the company had to have 145%.
So,
let's take a look at the picture six months forward.
We mentioned the $60 billion TAM.
ARR now up over 725 million, on its way to a billion.
ARR holding pretty steady at 60% growth
as is NRR, Net Revenue Retention
and more than a thousand new customers
and 200 more with over a hundred thousand in ARR
and a small operating profit, which by the way,
exceeded the consensus pretty substantially.
Profitability is not shown here
and no one seems to care anyway these days.
It's all about growing into that TAM.
Well, that's a pretty good looking picture. Isn't it?
The company had a beat and a raise
for the quarter early this month.
So looking good, right?
Well, you ask, "How come the stock's not doing better?"
Well, that's an interesting question.
So let's first look at the stocks performance
on a relative basis.
Here we show UiPath's performance
against Pegasystems and Blue Prism,
the other two publicly traded automation pure plays,
you know, sort of in the case of Pega.
So UiPath outperformed post its IPO,
but since the early summer Pega has been the big winner
while UiPath slowly decelerated.
You see Blue Prism was the laggard until
it was announced it was in an acquisition talks
with a couple of PE firms
and the prospects of a bidding war
sent that yellow line up as you can see.
UiPath, as you can see on the inset,
has a much higher valuation than Pega
and way higher than Blue Prism.
Pega, interestingly is growing revenues nicely
at around 40%.
And I think what's happening is
the Street simply wants more.
Even though UiPath beat and raised^
Wall Street is still getting comfortable with management,
which is new to the public market game
and the company just needs to demonstrate a track record
and build trust.
There's also some education around billings
and multi-year contracts that the company addressed
on it's last earnings call,
but the Street was concerned about ARR from new logos.
It appears to be slowing down sequentially
in a notable decline in billings momentum,
which UiPath's CFO addressed on the earnings call saying,
"Look, they don't need to trade margin
for prepaid multi-year deals given the strong cash position.
Why give anything up?"
And even though I said, nobody cares about profitability,
well, I guess that's true until you guide
for an operating loss
when you've been showing a small profit in recent quarters,
which UiPath did,
then, all of a sudden people care.
So UiPath, is in a bit of an unknown territory to the Street
and it has a valuation that's pretty rich,
very rich, actually at 30 times revenue multiple
or greater than 30 times revenue multiple.
So that's why in my view,
investors are being cautious.
But I want to address
a dynamic that we've seen with these high growth
rocket ship companies.
Something we talked about with Snowflake
and I think you're seeing some of that here with UiPath.
Different model in the sense that Snowflake is pure cloud,
but I'm talking about concerns around ARR
from new logos
and that growth on a sequential basis.
And here's what's happening in my view with UiPath.
You have a company that started within departments
with a small average contract size,
ACV, maybe 25,000, maybe 50,000
but not deep six figure deals.
That wasn't UiPath's play.
And because the company focused so heavily on simplicity
and made it really easy to adopt
customer's saw really fast ROI.
I mean breakeven in months.
So you very quickly saw expansion into other departments.
So when ACV started to rise
and installations expanded within each customer,
UiPath realized it had to move beyond being a point product
and started thinking about a platform
and making acquisitions like ProcessGold and others.
And this marked a much deeper expansion
into the customer base.
And you can see that here in this UiPath chart
that they shared at their investor deck.
Customers that bought in 2016 and 2017
they've expanded their spend 15,
you know, 13, 15, 18 20 X.
So the LTV, the Lifetime Value,
of the customer is growing dramatically.
And because UiPath is focused on simplicity
and has a very facile freemium model,
much easier to try before you buy than its competitors,
it's CAC, it's Customer Acquisition Costs,
are likely much lower than some of its peers.
And that's a key dynamic.
So don't get freaked out by some of those concerns
that we raised earlier
because just like Snowflake,
what's happening is the company for sure
is gaining new customers,
maybe just not at the same rate,
but don't miss the forest through the trees,
i.e., they're getting more money
from their existing customers,
which means retention, loyalty and growth.
Speaking of forests,
this chart is the dynamic I'm talking about.
It's an ETR graphic that shows the components of net score,
or again, spending momentum.
Net score breaks down into five areas.
That lime green at the top is new additions.
Okay, so that's only 11% of the customer mentions.
By the way, we're talking about more than 125 responses
for UiPath.
So it's meaningful.
It's actually larger in this survey
or certainly comparable to Microsoft
so that says something right there.
The next bar is the forest green.
Forest green is where I want you to focus.
That's customer spending 6% or more
in the second half of the year relative to the first half.
The gray is flat spending, which is quite large.
The pink or light red that's customers spending
6% or worse,
that's a 4% number.
But look at the bottom bar.
There is no bar.
That's churn.
0% of the respondents in the survey are churning
and churn is the silent killer of SAS companies.
0% defections.
So you've got 46% spending more, nobody leaving.
That's the dynamic that is powering UiPath right now.
And I would take this picture any day
over a larger lime green and a smaller forest green
and a bigger churn number.
Okay. So it's pretty good.
It's not Snowflake good, but it's solid.
So how does this picture compare to UiPath's peers?
Well, let's take a look at that.
So this is ETR data,
same data showing the granularity net score
for Microsoft Power Automate,
UiPath, Automation Anywhere, Blue Prism and Pega.
So as we said before, Microsoft is ubiquitous.
What can we say about that?
But UiPath is right there with a more robust platform.
Not to overlook Microsoft. You can't.
But UiPath,
they'll tell you that they don't compete head to head
for enterprise automation deals with Microsoft.
Well, maybe they will over time.
They do however, compete head to head
with Automation Anywhere.
And their picture is quite strong as you can see here,
you know, as is Blue Prism's picture and even Pega,
although Blue Prism, Automation Anywhere,
UiPath and Power Automate,
all have net scores on this chart,
as you can see the table in the upper right,
over 40%.
Pega does not.
But again, we don't see Pega as a pure play RPA vendor.
It's a little bit of sort of apples and oranges there,
but they do sell RPA and ETR captors in their taxonomy
so why not include them.
Also note that UiPath has, as I said before,
more mentions in the survey than Power Automate,
which is actually quite interesting,
given the ubiquity of Microsoft.
Now, one other notable note
is the bright red, that's defections,
and only UiPath is showing zero defections.
Everybody else has at least, even if it's slim,
some defections.
Okay. So take that as you will, but it's another data point
and one that's powerful, not only for UiPath,
but really for the entire sector.
Now, the last ETR data point
that we want to share is our famous two-dimensional view.
Like the sector chart we showed earlier,
this graphic shows net score on the vertical axis,
that's again, spending velocity
and market share or pervasiveness on the horizontal axis.
So as we said earlier,
UiPath actually has greater presence in the survey
than the ever presence, Microsoft.
Remember, this is the July survey.
We don't have full results
from the September, October survey yet
and we can't release them
until ETR is out of its quiet period.
But I expect the entire sector,
like everything is going to be slightly down
because as we reported last week,
tech spending is moderated slightly
in the second half of this year,
but we don't expect the picture to change dramatically.
UiPath and Power Automate,
we think are going to lead in market presence
and those two plus Automation Anywhere
are going to show strength and spending momentum
as will most of the sector
and we'll see who comes in above the 40% line.
Okay. What to watch at Forward IV.
So in summary, I'll be looking for a few things.
One, UiPath has hinted toward a big platform announcement
that will deepen its capabilities to go beyond
being an RPA point tool
into much more of an enterprise automation platform
rewriting a lot of the code, Linux, Cloud,
better automation of the UI.
You're going to hear all kinds of new product announcements
that are coming.
So I'll be listening for those details.
I want to hear more from customers to further confirm
what I've been hearing from them
over the last couple of years
and get more data,
especially on that ROI, on that land and expand.
I want to understand that dynamic
and that true enterprise automation.
It's going to be good to get an update face-to-face
and test some of our assumptions here
and see where the gaps are and where UiPath can improve.
Third, I want to talk to ecosystem players
to see where they are
in participating in the value chain here.
What kind of partner has UiPath become since it's IPO?
Are they investing more in the ecosystem?
How do partners fit into that flywheel?
Fourth, I want to hear from UiPath management,
Daniel Dines and other UiPath leaders,
you're exiting "toddlerville"
and coming into an adolescent phase or early adulthood.
And what does that progression look like?
How does it feel?
What's the vibe at the show?
And finally, I'm very excited to participate
in a live in-person event to see what's working,
see how hybrid events are evolving.
We got a good glimpse at Mobile World Congress
and this week in DC at Public Sector Summit.
And as you know,
theCUBE has been doing hybrid events for years,
and we intend to continue to lead in this regard
and bring you the best, real time information as possible.
Okay, that's it for today.
Remember, these episodes are all available as podcasts,
wherever you listen.
All you do is search Breaking Analysis Podcast.
We publish each week on wikibon.com
and siliconangle.com
and you can always connect on Twitter @dvellante
or email me at david.vellante@siliconangle.com.
Appreciate the comments on LinkedIn
and don't forget to check out etr.plus
for all the survey data.
This is Dave Vellante for theCUBE Insights powered by ETR.
Be well
and we'll see you next time.
(upbeat music)