So looking at the earnings numbers and earnings call from $PATH here are the things I found interesting:
The results for Q4 were remarkable. ARR grew 72% YoY, dollar based net retention rate was 145% and total customers spending over $1M in annual ARR was up 78%.
Obviously, the stock fell today by 25% on the back of worse than expected guidance for Q1 2022. While many people stated the reason for the lower than expected guidance was because of tighter competition from companies like $MSFT and $NOW management on the earnings call dismissed that option:
"We are not seeing really any increase in the competition. On the contrary, we are seeing less competitive pressure in the deals. We are -- so we can comment if you are interested on various major players that we are seeing in the business. And in terms of the -- our traditional specialized competitors, we are really seeing less and less of them. We are replacing Blue Prism and Automation anywhere in many customers. And speaking about the new entrants like Microsoft and ServiceNow, we are -- we really -- we are not seeing them that much. I can comment on both specifically, if you are interested.
And then just on the numbers basis, I think it's really important. We see -- when you look at our win rates, we continue to look and analyze win rates between where Microsoft and where some of these large players are playing and where they're not. We don't see them a lot. But even when we do, our win rate has no difference compared to where they are not playing. So we're really -- the trend of continuing to feel us is the dominant player in the industry. Right now, that is continuing from the data that I see and that we see as a team."
The reason for the lower guidance is because of headwinds caused by the war and the freezing of clients in Ukraine and Russian and Forex-related headwinds because of the war. Management stated the Russian revenue loss in the effect of 15M and FX headwind in the range of 20M-25M. According to the call, another headwind for the short-term revenue impact is the continued transition of clients from on-premise to cloud, which affected revenue expectations by -4%.
What was surprising to me, given the stock price reaction, is that the guidance for 2023 still expects ARR revenue growth in the range of 30.8% (without the Russian headwind, it would be around 35%). So the company is still growing at a high level.
I don't own the company yet, but at these valuation levels, after the dust settles, I might start a position as I like and know the RPA industry very well, given that I also founded a startup that is directly linked to the fast growing RPA industry.
The key thing for $PATH, in my view, is how they compete with $MSFT and that they still keep a dominant position. Watching Google trends and recent job listings, it seems like $MSFT's RPA offering is catching up to $PATH but seeing management today receiving a point-blank question regarding this competition and answering the way they did gives me more confidence in the company and the stickiness of the platform.
Maybe the business is good but that doesn't mean the stock has to be imo. Even after the massive drop today it trades at over 8.5x forward sales. Such a multiple can only really make sense if it's a highly profitable firm, but the forward EV/EBITDA is over 200x. Until they can prove a scale to profitability while also growing today's move isn't unreasonable by any means
It is really hard to find a growing tech industry with great potential that doesn't have one of the Big Tech companies already in it our looking to enter the space. Over the last 15 years companies like $MSFT, $GOOG, $AMZN, $AAPL and $FB just wait for smaller companies to "prove" and mature the market and then when it is ready enter it and dominate it. That is why finding growth companies that are the market leaders in their growing space and do not face competition from the likes of the big ones is a gem to find. One of the rare companies that comes to my mind in this context is for example $ABNB.
If you have other good examples of companies dominant a tech related space and do not face competition from Big Tech write them below.
Right now it's really hard to look past macro environment. But if you have a long-term horizon you should, because overly focusing on the macro stuff and playing daily macro economist can cloud your judgment and make mistakes in your investment decisions.