Data Viewpoint

HFS Data Viewpoint: 2021 Hyper Hype: How UiPath’s bubble has blown (even) bigger than the most admired enterprise apps 

February 23, 2021

  • The S&P 500 price-to-sale ratio (with an overall valuation of 2.85 x revenue) may be riding at an all-time high as we get rolling in 2021 – but it’s a drop in the ocean compared to the wonder numbers bubbling up in the world of RPA and enterprise apps.
  • Indian heritage service providers are the market darlings compared to the US global service providers (4.93 compared to 2.25) – driven in large part by the valuation of TCS – as it goes toe-to-toe with Accenture for the title of world’s most valuable IT services company.
  • But the big bubbles are blowing up around the Enterprise Applications players; Coupa and Microsoft making the largest contribution to value inflation here. The 27.47 average PSR in the Enterprise Applications segment makes even RPA’s bubble look reasonable – IF you exclude UiPath.
  • Without UiPath’s recent revaluation at $35bn as it heads for IPO the rest-of-RPA bubble comes out with a PSR of just under 12 – more than double that of the most-admired Indian heritage service providers – and more than four times the S&P 500.
  • But UiPath is out there on its own – a PSR outlier on a valuation of $35b and sales in the region of $400m per annum.

The Bottom Line. When money is cheap, assets get expensive.

With interest rates at zero or negative, the value of future cash flows rocket – that’s how we get to the price/revenue multiples we are seeing today. How far into the realms of ‘fantasy’ UiPath’s PSR has actually strayed, will be revealed by IPO – ultimately the only path forward for them. It has received more than a $1B in funding and its investors would like some return.  When valuation makes you a “deca-corn” it’s tough to find a buyer. Public markets to the rescue. HFS has been VERY vocal about our view that RPA is in no way transformative, but that there is a ton of “now” value to be reaped from helping enterprises prop up legacy for another couple of years. UiPath investors have always been clear that the “now” value of RPA is what makes it investment-worthy. And in a pandemic, even more so.

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