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UiPath (NYSE:PATH) was in focus on Wednesday as Scotia Bank initiated coverage on the robotics automation software company.
New York-based UiPath has turned into a "full-fledged platform for enterprise level automation," analysts Nick Altmann and Patrick Colville wrote in a note to clients, allowing it to expand its total addressable market and gain wallet share from existing customers. Altmann and Colville put a Sector Perform rating and $29 price target on UiPath shares.
"We believe PATH is set up to make further inroads into automation budgets and continue its industry leadership, but the opportunities come with challenges, namely a dynamic end-market and rising competition," the analysts wrote. "We are intrigued by PATH’s growth durability and margin progression as it scaled to $1.5B in ARR in short order, but wait for a better entry point before recommending shares."
Shares were down 3% in early Wednesday trading.
UiPath appears to be on a pace to go beyond the $1.5B in annual recurring revenue, the analysts said, moving further into automation where some markets are considered "extremely dynamic" with lots of mergers, product roadmap overlay and exposure to generative artificial intelligence, the analysts said. While its platform may allow it to better solve some of its customer's issues, it's not without competition, especially in the future, as companies like Microsoft (MSFT) push further into the area.
"Our partner and customer feedback suggests competitive dynamics from MSFT and other application-software vendors are not impacting growth significantly today, though we did pick up pockets where competitive dynamics were heightening and impacting partner practices and customer perception around their future automation footprint. Moreover, most partners and customers we spoke with expect competition to heighten over the [next twelve months]," Altmann and Colville wrote.
"Positively, we believe PATH is well positioned against core [robotics platform automation] vendors, and we think there is continued opportunity for share gains against incumbents."