After recent speculation that the RPA market is over-heating, it’s been confirmed that UiPath is to cut 400 jobs, or around 1 in 8 of its workforce of 3,000. This is a reality check for the RPA market, which has been on a seemingly stratospheric growth curve.
First thing to say is we’re not as pessimistic on this announcement as some. It doesn’t mean that the overall UiPath company performance, or the RPA market as a whole, has changed for the worse.
CEO and founder Daniel Dines explained the reasons for the pullback: “we have worried that we could become less agile and responsive to customers… we identified opportunities to streamline, such as combining our partner sales and direct sales teams in every region. We are also shifting investments from back-office to customer-facing operations. While this is largely about improving our customer experience, it is also about improving efficiency.”
Dines also confirmed that while UiPath has grown its workforce by 60% in the past 10 months, the company will still end 2019 with almost 50% more employees than they started the year.
Here’s our take:
- We should be cautious about reading too much into the job cuts, regarding the overall UiPath company performance.
- UiPath has grown very fast via a carefully planned decision to grab market share rapidly. This has meant taking a calculated risk, to expand at a rapid rate in its chosen markets.
- The company’s management approach has until now been very federated, so that teams and countries have had a lot of latitude in investment and hiring.
- This pull back is likely a natural consequence of the very high growth rate, and also trying to get more of a co-ordinated approach to hiring at a global level, while reducing overlaps and inefficiencies.
- For instance, UiPath has hired large numbers of people in supporting functions in country markets in order to drive growth at the local level. This has included large numbers of marketing and business development personnel.
RPA Market is Not Slowing Down
There’s no evidence from our research that growth in the RPA market is slowing down. If you look at the only public quoted RPA vendor Blue Prism, they grew 82% in their most recent quarter. There’s no reason to think that UiPath is any different. In fact growth is likely to be higher.
What’s more likely is a reset of expectations from investors on the costs needed to deliver the growth. Having ploughed over $1bn into UiPath since 2017, it’s been hiring at a dramatic rate, adding several hundred people per half year. We have always thought a recalibration would take place at some point, and here it is.
What is also true of course, is that the core RPA technology has been commoditizing very quickly, so there’s downward pressure on pricing for all players. This means they simply have to drive much harder and faster in to differentiating themselves from the pack, through investments in Artificial Intelligence, workflows, user experience and integrations with third party specialists. This comes at a cost to the business, and its here where we suspect funds will now need to be redirected more to accelerate that advance.
And, of course, a more clean balance sheet will do no harm to any ambitions for a future IPO.
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