Will GenAI destroy UiPath's success story?

Initially, the company turned to more accessible labor to improve efficiency - like John in Mumbai and Rosie in Manila. Then, they realized the Mumbai backend The process-based approach taken by operations lends itself well to automation, Robotic Process Automation (RPA) came into being, digital agents are now encroaching on back offices and chatbots are watching Rosie in Manila work, and as a result, everything is becoming better. Better, faster, more convenient, and then GenAI appeared.

UiPath, RPA and GenAI

Not only do we rave about the sponsors because they paid for it, these guys are not only good looking, but they ask some great questions, e.g., many People are asking whether GenAI is outdated as a solution, and the impetus behind these questions is our investment in one of the leading RPA companies - UiPath (PATH), which recently reported year-end earnings and talked about some GenAI capabilities in the pipeline .

For those of you who also think accountants who use fiscal years should be shot on the spot, we'll explain the timeline for you. The first half of fiscal 2025 means UiPath will preview these products to some customers on or before June of this year.

Our recent video on GenAI explores how McKinsey MBAs believe GenAI will primarily benefit AI companies that already have influence in some of the largest organizations in the world. If UiPath has successfully deployed automation solutions in 10,830 companies, they just need to add some GenAI capabilities to the platform to earn more revenue. The threat is unlikely to come from new competitors, although existing competitors may also use AI to gain more market share. One of UiPath's biggest competitors in the RPA space, Microsoft (MSFT), also happens to be providing GenAI capabilities for UiPath, a partnership that seems a bit strange in this context. Want to keep a closer eye on your enemies?

UiPath said: "Artificial intelligence expands functionality by enabling automation to learn to read, write, listen, recognize patterns and make complex decisions." Such advantages will be reflected in the additional use cases the company can solve, which should expand their total addressable market (TAM). Although, these are just stories for GenAI until we see revenue growth from existing customers reflecting the progress.

During the recent earnings call, analysts went all out to discuss the opportunities in artificial intelligence, raising questions about Cognition. The startup launched their new artificial intelligence software engineer, and it received rave reviews on social media. UiPath responded that they have formed a top artificial intelligence team internally to build their own basic model. This model "combines the knowledge of subject matter experts, such as accountants or auditors, with knowledge of how to use system applications." That's exactly what $300 million in R&D spending last year helped build.

UiPath's Revenue Growth

What is acceptable revenue growth for a disruptive technology stock? The answer depends in part on scale—the bigger you get, the more you post big growth numbers The more difficult it becomes. When you're trying to capture a $93 billion opportunity, revenue growth becomes a proxy for how much market share you're capturing. Double-digit growth seems to be the bare minimum one should expect, and UiPath's forecast is on par with Palantir's -- almost 20% growth this year (note that the valuation is one-third of that).

Last year, UiPath's revenue growth came from new customers, while 88% was attributed to existing customers. Considering they spent $671.3 million on sales and marketing last year (about 55% of revenue), they're clearly paying a lot for these new customers. Operating expenses are now falling as companies seek to rein in spending. Last year's positive cash flow suggests they are continuing to accumulate cash - now $1.87 billion - although some of that was used to buy back shares. These shares may be undervalued relative to some of the more hyped AI names in the market.

Expansion

Net retention rate (NRR) tells us how much more existing customers spend each year, which becomes more difficult as new customers become harder to acquire. is becoming more and more important. UiPath provides their NRR numbers once a year, and they are currently at 119%, compared to 124% last year. While a drop is always concerning, it remains around the 120% average that software-as-a-service (SaaS) companies expect. Existing customer uplift can also be measured by looking at net customer additions per revenue bucket.

•Customers with annual revenue over $100,000: 269

•Customers with annual revenue over $1 million: 59

•Customers with annual revenue less than $100,000: 30

New low-spending customers are rapidly dwindling on the platform, but this may change with the emergence of GenAI (wait and see). The company's new "AI AutoPilot" is being touted as everything from a replacement for Microsoft's Copilot (which doesn't make much sense) to a tool that developers can use. "In some cases, as many as 1,000 companies are looking at Autopilot," the company said in its earnings call, and you start to get a whiff of Palantir AIP from the whole thing. Having someone tinker with some fancy presentation tools at a small meeting is a far cry from getting signatures at the C level.

It’s always easier to get more money from existing customers than to acquire new ones. Consider how GitLab and GitHub quickly released GenAI tools that increased developer productivity and nearly doubled the potential funding they could receive from paying subscribers. Likewise, UiPath's use of GenAI should create new monetization opportunities. When we consider UiPath's total addressable market (TAM) segment, there is crossover between the no-code and application testing space and DevOps.

This goes back to analysts’ questions about how UiPath plans to stack up against newcomers in the AI ​​field. If construction turns into a dead end, they'll certainly have the cash to make a purchase.

Conclusion

RPA seems to be the perfect entry point for companies to start implementing GenAI solutions. Automation tools that get smarter can transform from record-and-playback macros into actual colleagues you can seamlessly interact with via email and chat. UiPath's relationship with one of their strongest competitors, Microsoft, appears to be a double-edged sword. Let's hope UiPath's OpenAI implementation adds more value than Microsoft's Copilot. As always, the real proof will be in the revenue growth numbers. Getting net retention to trend upward again would be a sign that UiPath is successfully monetizing more features than just keeping pace with the Joneses.