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Is ARK Invest right to to buy into UiPath's share price?

Cathie Wood’s ARK Invest funds have recently been selling some of its vast Tesla [TSLA] holding from some of its disruptive innovation-focused ETFs. Instead it is buying recently listed robotics software automation firm UiPath [PATH]. ARK’s Innovation ETF [ARKK] and Autonomous Tech & Robotics ETF [ARKQ] have added the stock to their portfolios.

UiPath was founded in 2005 in Romania by ex-Microsoft engineer Daniel Dines (pictured above), who subsequently moved the company to the US, setting up in New York. Its platform helps clients build and deploy software robots, using robotic process automation (RPA), a technology enabling the automation of repetitive and time-consuming business processes such as syncing databases, completing forms and moving files.

UiPath also incorporates artificial intelligence, so its bots can handle more complicated tasks, like engaging in conversations and making complex decisions, and can learn from human behaviour, becoming more intelligent over time.

 

Why has Cathie Wood’s ARK Invest bought into UiPath share price decline?

One strategy ARK Invest are known for is buying into innovative stocks following a dip in their share price, and that appears to have been the case with UiPath, after ARK bought 856,000 shares, equating to a position worth $44.9m, according to Seeking Alpha. ARKK bought just over 337,000 shares, while ARKQ purchased almost 520,000 shares.

ARK’s Innovation ETF now has 11,842,083 shares in UiPath, making it the 12th-largest of 48 holdings in ARK’s flagship ETF, with a 3.16% weighting, as at 4 October 2021. UiPath is also now the fourth-largest holding of 39 in the ARK Autonomous Tech & Robotics ETF, with a 6.57% weighting.

$44.9million

Total value of ARK's position in UiPath

 

However, despite ARK Invest selling over 340,000 Tesla shares, equivalent to $264m, the electric vehicle maker is still the top holding in both of these funds, with a 10.14% weighting in ARKK, and an 11.75% weighting in ARKQ, respectively.

 

What’s happening with the UiPath share price?

The UiPath share price hit its all-time high on 28 May, reaching an intraday peak at $90.00 a little more than a month after its successful IPO launch saw the shares open at $65.50, over $10 above the expected IPO range. UiPath was one of the biggest-ever US software IPOs, as its market cap reached almost $45bn back in May. However, the high price appeared to become an opportunity to take profits for a number of early investors. Since the 21 April launch, UiPath’s share price is down 21.60% as at Monday 4 October’s close at $51.35, having declined 17.79% across the last month.

 

Why is ARK Invest attracted to UiPath?

No doubt a major attraction for Ark Invest and CEO Cathie Wood, is that the industry is still in its early stages and therefore has huge potential. In fact, UiPath believes the total market will be worth $60bn in two years. Forrester Research recently recognised the company as the RPA industry leader, owing to a stronger offering and growth strategy than its rivals, reports the Motley Fool.

Although the company is yet to make a profit, the numbers are certainly moving in the right direction. Revenue leapt 81% to $607.6m last year, as losses narrowed to $92.4m, from $519.9m in 2019, according to CNBC. In its most recent results for Q2, released on 7 September, the company smashed its expectations, recording a year-on-year revenue hike of 40% to $195.5m, while annual recurring revenue (ARR) jumped 60% year-on-year to $726.5m. This compared with UiPath’s own guidance of $180m-$185m and $702m-$704m, respectively. The company also raised its full-year ARR guidance from $850m-$855m to $876m-$881m.

Further underlining the firm’s growth potential, UiPath posted a dollar-based net retention rate of 144% in Q2, meaning the average customer spent 44% more over the past year. This offers evidence that clients find the platform valuable and are spending more over time. Also revealed in its Q2 numbers, some 1,247 of its 9,100 customers spend more than $100,000 every year.

$607.6million

UiPath's 2020 revenue - an 81% rise

  

Potential headwinds could come from increased competition in a fast-evolving sector, from the likes of  Automation Anywhere and Microsoft [MSFT], which are “hot on its heels”, according to the Motley Fool. UiPath’s clear strategy to combat this threat has been through funnelling its cash into research and development. This year’s $151m R&D spend is almost triple the first six months of 2020, reports the Motley Fool. The hope for the company is that it benefits from increasing adoption levels as more businesses seek to drive efficiency through automation.

 

What’s next for the UiPath share price?

UiPath has 10 ‘buy’, one ‘overweight’ and 10 ‘hold’ ratings, along with one ‘sell’ rating, according to the Wall Street Journal, for a consensus positive ‘overweight’ rating from brokers covering the stock. The average price target among analysts is $71.65, which represents a potential upside of 39.53% from Monday's close of $51.35. At the very least, this innovative, high-growth stock looks like one to watch. ARK Invest’s chief executive Cathie Wood certainly thinks so.

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