UiPath IPO will raise nearly $ 1.5 billion as cloud shares pull back

UiPath’s New York Stock Exchange, scheduled for Wednesday, will be one of the largest software stock exchanges in U.S. history and the first trade for cloud investors since Snowflake was announced in September.

But the company, whose software helps businesses automate office tasks, has to contend with growing investor concerns about foaming valuations and a market shift away from high-growth technology.

In recent years, the cloud has been a wonderful bet. From the dazzling popularity of Zoom to the 2019 stock market and the growth of e-commerce in Shopify, to the rising demand for cloud security tools sold by Zscaler and CrowdStrike, investors now have an extensive list of big capital names for their portfolio.

In 2020, the WisdomTree Cloud Computing Fund, consisting of 58 stock exchange providers of cloud software, more than doubled, while the Nasdaq rose 44% and the Dow Jones industrial average gained just 7.2%.

In the direction of UiPath’s stock market, there has been a noticeable shift in the trend as investors move to stocks that have a popular advantage if interest rates continue to rise. The cloud index has fallen more than 7% this year, while the Dow has climbed more than 10%, better than other US standards.

Jake Dollarhide, chief executive of Longbow Asset Management, said while staying on cloud stocks in the long run, sentiment was undoubtedly deteriorating. Part of that, he said, has to do with the reopening of the economy and uncertainty over whether businesses will withdraw their cloud spending when they return to office. There is also a sense of market saturation among investors because so many cloud providers have become known in recent times, he said.

“The pre-pandemic in the cloud was like a Tesla – it was new and hot,” Dollarhide said. “From the pandemic it comes like the Model T. It has become so ubiquitous.”

UiPath is only able to reach the market at the right time based on its financial metrics. Revenue increased 81% last year to $ 607.6 million, and the company’s loss decreased to $ 92.4 million from $ 519.9 million in 2019. The company’s gross margin of 89% is even for software striking.

However, UiPath’s updated IPO price range of $ 52 to $ 54 per share values ​​the company around $ 28 billion, which is lower than $ 62.28 per share, or a valuation of $ 35 billion, in a financing round at the beginning of February.

The stock may still open well above the level. UiPath may have lowered the price range to show growing enthusiasm by raising the offer price, and bankers may be taking a conservative approach to leaving room for a stock doll.

Even though it costs $ 54, UiPath stares at a steep multiple compared to almost all of its peers. At that price, the stock will trade about 50 times a year on an annual basis, which will be second among Snowflake’s cloud stocks and about Zoom’s double ratio.

It would also be a huge offer, amounting to $ 1.48 billion, assuming the underwriters buy their allotted shares. According to FactSet, only two U.S. stock exchange notations have ever surpassed the mark and both have taken place over the past seven months. Cloud database vendor Snowflake was the largest, raising $ 3.9 billion in September, followed by Qualtrics, which raised $ 1.78 billion in January after withdrawing from SAP.

“Snowflake for me was the most positive perfect story,” Dollarhide said, adding that he does not own the stock. “It came out at the right time. It was just a beautiful investment if you were lucky enough to get on the ground floor.”

Snowflake more than doubled to $ 253.93 on its first day of trading. It has since fallen 12% to $ 223.09 as of Tuesday. Across the WisdomTree cloud index, the average price-to-sales ratio fell to 13.2 at the end of March, from a ratio of 15 in December, after nearly doubling from the previous year.

Founded in Romania in 2005 and now headquartered in Romania, UiPath calls its technology ‘robotization process automation’. The company’s software robots are designed to automate repetitive tasks in industries such as healthcare, manufacturing and energy and in various departments, including finance, human resources and law.

UiPath’s appeal to investors depends on the ability to hold back customers and spend more money, so that revenue grows rapidly while costs (as a percentage of revenue) fall.

In its last financial year, UiPath reported a net retention of revenue of 145%, meaning that the average existing customer increased spending by 45% from the previous year. Jon Ma, co-founder of Public Comps, calls UiPath’s retention rate ‘best in class’ and the third highest among all public subscription software. In an “IPO breakdown” published by Ma last month, he writes that “businesses continue to add UiPath bots and automate more processes.”

UiPath, which ranked 50th on CNBC’s 2020 Disruptor 50 list, said in its prospectus that the number of customers spending at least $ 1 million in annual revenue rose to 89 from 43 the previous year and 21 this year. for that.

Enrollment software companies call it a “land and expand” strategy, whereby businesses can start a test and then buy a limited amount, with the idea that some will eventually become power users. Thomas Hansen, UiPath’s chief revenue officer, said in the online roadshow that UiPath helps customers see value within a few days or weeks.

“No matter how big or small a customer starts, the time from this initial country to expand happens very quickly.” Hansen said.

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