Recently, there has been explosive growth when it comes to cloud-based enterprise applications. Many enterprises have transitioned from using largely on-premise applications to specialized solutions across on-premise, hybrid, and cloud environments.
Moreover, automation of enterprise applications is the new frontier that enables enterprises to tailor, unify and run applications without significant changes to the organization’s existing information technology (IT) infrastructure.
Using the TipRanks stock comparison tool, let’s compare two enterprise automation companies, UiPath and Pegasystems, and see how Wall Street analysts feel about these stocks.
UiPath (PATH)
UiPath offers an end-to-end platform for automation, which combines a Robotic Process Automation (RPA) solution with a full suite of capabilities that enable every firm to rapidly scale digital business operations.
In Q2 FY22, the company posted revenues of $195.5 million, up 40.3% year-over-year. Adjusted earnings came in at $0.01 per share, against the consensus-estimated loss of $0.05. (See UiPath stock charts on TipRanks)
The company reported an annualized renewal run-rate (ARR) of $726.5 million, up 60% year-over-year. In Q3, PATH anticipates ARR to be between $796 million to $798 million.
UiPath defines ARR as “annualized invoiced amounts per solution SKU [stock keeping unit] from term subscription licenses and maintenance obligations assuming no increases or reductions in their subscriptions.”
Daniel Dines, UiPath Co-Founder and CEO, commented, “Our results were driven by both new customer additions, ending the quarter with more than 9,100 customers, as well as robust expansion with existing customers, reflected in our best-in-class dollar-based net retention rate of 144 percent.”
The company has projected revenues to range between $207 million and $209 million in Q3, while an operating loss could vary from $15 million to $30 million.
According to PATH’s management, Automation Cloud, its cloud-based automation solution, had around 2,850 customers in FY21. In Q2, “more than 45%” of its new customers purchased Automation Cloud.
Oppenheimer analyst Brian Schwartz believes that this data indicates “good traction with the cloud platform and that UiPath’s Automation Cloud is resonating in the market.”
Furthermore, the analyst is of the opinion that “the market for hyper automation software remains fragmented and underserved” and as a result, sees “no shortage of operational tasks and integration requirements that could benefit from UiPath’s Automation Cloud. This suggests an open-ended growth opportunity for PATH, which is an attractive investment trait.”
The analyst is sidelined with a Hold rating on the stock.
Another positive for the stock, according to Schwartz, is the company’s go-to-market technology partner ecosystem, which has expanded to 4,700 partners globally. This places PATH “in the leadership position among pure-play suppliers for channel breadth and scale.”
Moreover, the analyst sees “partnership scale as a key adoption and growth driver for UiPath given how early the RPA market is in evolution.”
Turning to the rest of the Street, Wall Street analysts are cautiously optimistic about UiPath, with a Moderate Buy consensus rating, based on 6 Buys, 9 Holds, and 1 Sell.
The average UiPath price target of $72.93 implies 42% upside potential from current levels.
Pegasystems Inc. (PEGA)
Pegasystems licenses its low-code Pega Platform to clients for rapid application development. PEGA has built a cloud-architecture portfolio of customer engagement and digital process automation applications that use artificial intelligence (AI) and robotic automation technology.
In Q2, the company’s total revenues rose 43% year-over-year to $325.7 million, beating the consensus estimate of $273.14 million. Adjusted diluted earnings came in at $0.23 per share versus a loss of $0.28 per share in the same quarter last year. Analysts were expecting a loss of $0.18 per share.
Ken Stillwell, Pegasystems’ COO and CFO, stated, “I’m excited that annual contract value [ACV] grew 22 percent year-over-year in the first half of 2021. Pega Cloud continued to be the biggest contributor to ACV growth for the third consecutive year. Equally exciting, we grew sequential backlog and delivered the strongest revenue quarter in the company’s history.”
The company defines annual contract value as the “annualized value of our active contracts as of the measurement date.” It is calculated by taking the “contract’s total value is divided by its duration in years to calculate ACV for term license and Pega Cloud contracts.”
For maintenance ACV, the most recent quarterly maintenance revenue is multiplied by four. (See Pegasystems stock chart on TipRanks)
According to Needham analyst Jack Andrews, PEGA’s Q2 revenues benefitted from a “large multi-year contract that renewed,” and which resulted in Q2 upfront revenue in excess of $30 million for the company.
The analyst reiterated a Buy and a price target of $180 (46.3% upside) on the stock, following the Q2 results.
However, Andrews noted that the company’s management “expects constant currency ACV growth of ~20%, which implies a slightly more muted acceleration relative to our prior modeling.”
Yet the analyst also cautioned that while the management is optimistic that a rise in sales efficiency and increasing partner relationships will contribute to growth in ACV, Andrews expects these changes to take place over a longer time horizon.
Moreover, Andrews pointed out that while many software companies have looked at migrating “their existing legacy base to the cloud, PEGA is not incentivizing customers to move, which would distort total Cloud growth rates.”
Interestingly, late last month, amid a broad sell-off of technology stocks, Wedbush analyst Daniel Ives had picked the stock as one of the stocks to Buy. Ives commented, “In a nutshell, we continue to encourage investors to use these pullbacks as times to sharpen their pencils and own the secular winners for the next few years in the burgeoning US tech space.”
PEGA has tanked 12% in the past month. Ives has rated the stock a Buy and has a price target of $155 (26% upside) on the stock.
Turning to the rest of the Street, Wall Street analysts are cautiously optimistic about Pegasystems, with a Moderate Buy consensus rating, based on 2 Buys and 1 Hold.
The average Pegasystems price target of $163.33 implies 32.8% upside potential from current levels.
Bottom Line
While analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, PATH seems to be a better Buy.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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