Blue Prism - A New Position

Investment Analysis Clubs Saul’s Investing Discussions
#5

Thanks, Ethan for bringing Blue Prism to our attention. I looked at the financials last week and have since taken a 3% position. Being a UK listed company makes the analysis a little different. The company reports results every 6 months instead of every 3 months. The financials can be accessed from the Blue Prism invest relations website:

https://investors.blueprism.com/investors/results-centre

Blue Prism has all of the attributes of our hyper growth SaaS companies: blistering fast growth, high margins, recurring revenue. It looks like their OPEX as a percentage of revenue is now declining and they may be cashflow positive sometime next year. They also continue to grow their customer count and they continue to upsell their install base which is a testament to the value that customers derive from their service. The ROI achieved by their customers makes continued future customer adoption highly probable. When they mentioned the 10-15% hit to their business from COVID-19, I thought of AYX. I think that last period’s drop-off was likely a 1-2 period blip. I think the same is likely with AYX. When customers get such high ROIs, they will implement. I think customers will resume such implementations (for AYX too) as the initial chaos of the global shutdowns likely caused enterprises to pause while they put out fires and assessed the damage. AYX and Blue Prism might be similar in this regard. Since Blue Prism will next report results in late November or early December, we might look to AYX’s next results for clues about how Blue Prism’s results might look.

I would rather invest in the top company which is UiPath in the RPA space. However, Blue Prism seems to me to be a diamond in the rough. The EV/S is below 8 while companies with similar characteristics are trading at 3-4x (or more) higher multiples. When UiPath goes IPO, I would think that the multiple for that IPO would be well over 30x (all things being equal to today’s SaaS valuations). Seems to me that this would very likely pull Blue Prism’s multiple up significantly since Blue Prism’s multiple is so far below SaaS companies with comparable financial metrics…UiPath will give a direct comparable and such a large valuation discrepancy would not last long (IMO). In fact, at that time of a UiPath IPO, I might consider switching horses from Blue Prism to UiPath, but I’d like to ride up a company in the space in the meantime. We’ll see. For now, Blue Prism, while not perfect, is clearly the best bet in the RPA space.

There is always a chance for an acquisition. IBM and Microsoft have bought companies. Other tech giants like Oracle might be interested in getting into this rapidly growing market.

The shares are traded in London and that market provides more liquidity than buying in the US. The UK ticker is PRSM:GB and the US ticker is BPRMF. The UK shares trade at higher volume but even so that volume is not that great, and Blue Prism is barely over $1B market cap. Note: buying in the London exchange or in the US market results in the same shares (I bought PRSM:GB using my international trading team at my broker and after the purchase the shares in my account were coded BPRMF). I can speculate that if there is more interest from readers of this board that the shares might be driven up over the next few days. Be careful and use limit orders if you decide you want a position.

Chris

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#6

Very interesting.

Don’t forget AYX is working in this direction too: https://www.prnewswire.com/news-releases/alteryx-unveils-ana….
I wrote this post about what looks like a big ramp up in sales and marketing there and I speculate it is for their new platform: https://discussion.fool.com/is-alteryx-ayx-cooking-up-a-surprise…
Here is a post by Muji with a lot of info too: https://discussion.fool.com/alteryx-q120-and-its-new-apa-platfor…

Back to Blue Prism (and UIPath): I watched some videos on YouTube and I can’t believe how ugly these interfaces are. Here are 2:

I build these sort of things and I am totally tuned off by the demos I saw. They look like a temporary GUI a programmer whipped up as a placeholder so they could get some work done. The amount of clicks needed to do anything on Blue Prisms looks terribly fatiguing. It seems like any time you want to see some data you spend a couple of clicks to open up window upon window and then scroll around because the info isn’t right there, then click to close them all one at a time. See the part that starts at 3:19 in the first video above. Do that all day and you won’t think this is a small thing. It is funny that a company focused on improving workflows offers such a bad user interface. If they are as good as they seem under the hood, then it shouldn’t take much effort to make it nice to use for the same underlying system. I wonder why they haven’t.

Zapier (https://zapier.com) is cloud-based and fairly simple in what it can do, but it is pretty neat to use! To bad they, too, are privately owned. This article has some interesting info on them: https://blog.getlatka.com/zapier-hits-3m-subscribers-doubles…
A demo video: https://www.youtube.com/watch?time_continue=74&v=3S1yzf9…

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#7

Ethan,

In a recent investor call, an analyst asked Smartsheet about RPA when he was talking about how smartsheet can be used to automate business processes. So, definitely RPA is on the radar of many companies. I intend to look deeper. However, despite the fast growth in the overall RPA market (40-60%), I am struck that the third company you listed as a leader, “Automation Anywhere” is growing slower. You mentioned that Blue Prism themselves had some stumbles in R&D but has recovered. So, clearly R&D and execution are key to ensure growth even in a fast-growing industry.

I note that Blue Prism’s revenue growth has slowed very quickly, even pre covid. Yahoo finance says revenue has been

2016 9.6M
2017 24.5M (+155%)
2018 55.2M (+125%)
2019 101M (+83%)

Also, you state that Blue Prism had a market share in 2018 of 8.4%. Its TTM rev. is $129.1M out of a current $5B market which indicates a 2.5% market share. I would like to hear your thoughts on Blue Prism’s slowing rev growth and what appears to be eroding market share.

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#8

I note that Blue Prism’s revenue growth has slowed very quickly, even pre covid.

Hi Texmex,
From the figures you gave, Blue Prism grew from $9.6 million to $101 million in THREE YEARS!!! Thats over ten times in three years !!! Over 1000% its starting size in three years! That doesn’t sound like a pace that can be continued and slowing seems obligatory. And who knows what $5 billion market means. It could be someone’s estimate of TAM (which is obviously growing rapidly).
Best,
Saul

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#9

Hi Texmex,

It looks intriguing, but losses seems to be growing faster than earnings. Losses for the year as reported in Oct of 2017, 2018, and 2019 show 9.5, 26 and 81.4. Revenue doubled, but losses tripled between October 2019 and Oct. 2019.

Seems to me that our best companies may not be making money, but losses are shrinking and in many cases the companies have a positive (Non-GAAP) cash flow.

I am going to delve in a bit deeper, but this cursory glance has me asking why this company now?

Thanks,
Gordon

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#10

Thank you for this write up Ethan

I live in London so I’m always interested to see a UK stock hits the Saul Kingdom.

I know a lot of UiPath and I am waiting patiently for their IPO.

In regard to Blue Prism, do you have any insight into their stock price performance? Its all time high was almost 2 years ago and has been on a steady decline since?

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#11

Ethan thanks for bringing to the board. I started a small position after reviewing the company this AM.

Something I found that you alluded too (when you mentioned that Blue Prism reinvigorated and rebounded in 2019) in your write up was the was the acquisition of Thoughtonomy in June of 2019.

From the press release:

The acquisition of Thoughtonomy provides Blue Prism with a productised solution which simplifies and broadens access to its connected-RPA platform via turnkey SaaS capabilities, thereby opening up the mid-tier of the market. The Group expects synergies to be realised by leveraging its well-developed network of distribution partners in promoting and distributing this product.

Blue Prism anticipates that cloud-based RPA deployments will in time become increasingly required by enterprise users and, while it currently has numerous cloud-based deployments of its enterprise solution, the development of cloud-based products to further address the market requirements is a clear part of its product roadmap. The acquisition of Thoughtonomy, in particular its cloud orchestration tools, resources and skills, will feed into these product initiatives.

Noticed how revenue bumped up H1 2019 to H2 2019. Add to that you said the company reported Covid impacted H1 2020 revenue by 15-20%. Let’s take the lessor to be conservative. 15% of 68.5 is 10.3 add that to revenue number that is 78.8, that would be 95% growth y/y or an acceleration of revenues since the acquisition.

I believe you found the proverbial “diamond in the rough”. Thank you!

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#12

Ethan and GauchoChris,

Thanks for the notes/analysis on Blue Prism and sharing with the board.

The EV/S is below 8 while companies with similar characteristics are trading at 3-4x (or more) higher multiples.

The above stat, and the fact that most all other metrics demanded by this board are also currently being met by Blue Prism is what got me to take a small starter position today. This same reasoning is what got me into LVGO in the low $20’s before the EV/S multiple quadrupled, and this stock seems like that could be a possibility at some point down the road, too, we will see.

Not reporting again until Nov/Dec will present a challenge in that we can’t see how things are progressing as often as with our other companies.

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#13

Gordon,

Look at company report: https://investors.blueprism.com/sites/blueprism-ir/files/326…

Employee count increasing significantly
2017-187
2018-469
2019-1001

Company said:

We increased our employee base by over 100% as we embraced the global growth opportunity.

CFO comments

Q Why did you raise money? Why not use cash generated by the business?

A The Board will always look to see what decisions they can make that will maximise value. In recent years, we have looked at the latent RPA market, and our position as a market leader, and decided that the time was right to invest more money in growth, to both protect and develop our position.
In both 2018 and 2019, we felt that we should raise funds from the public markets so we could invest ahead of cash generation, as the competitive environment meant that to truly make the most of the market opportunity, we needed to invest today. It has also allowed us to invest while maintaining a strong balance sheet.

Q What did you spend the money on?

A In 2018 we used the £40m raised to:
• Expand sales and marketing across all of our regions
• Develop and scale our distribution partner network via certification
• Commercialise our technology partner network
• Product development
• Invest in our people, processes and infrastructure

In 2019, we used the £100m raised to build upon the foundations laid in 2018, with investments in:
• Growing sales and partner management globally
• Marketing and lead-generation
• Launching connected-RPA to the market
• R&D and product development
• Establishing a customer success function
• Continuing to invest in our people,processes and infrastructure

Does not seem too different than any other rapidly growing company, just trying to grab as much market share as they possibly can as quickly as they can.

11 Likes
#14

hi retirementdough,

I did not read the company report, but looked at the semi annual and annual results posted on Schwab. Thanks for the clarification, and taking the time to post.

Gordon

#15

That is an interesting sector. Initially RPA seemed to be more suited for getting the legacy or the older system ‘automated’ by coupling to them an UI. Then they started talking about using AI to do ‘cognitive RPA’ but that part is still somewhat new. I am unclear how well that work. How much of Blue Prism RPA of the ‘cognitive’ kind?

tj

#16

I managed enterprise applications for a very large insurance company. We initiated a Proof of concept for automating some manual processes using UIPath and quickly formed a team to expand it’s use cases. Well established, larger organizations with high transactional volumes can easily reap benefit from RPA technologies. There is always low hanging fruit the software can address to secure an easy win with the customer and make an easy ROI case to expand its adoption. Another words, land and expand. I was a software consultant for many years, serving clients within the Financial, manufacturing, retail, and healthcare industries. This goes back many years, but low hanging fruit and inefficiencies were easy to spot and I expect that is still the case in most companies. RPA is being used for desktop automation (ex: automatically open your frequently used applications in morning), process automation, and I agree with the comment that AI and machine learning will likely create new use cases that are not even being considered at the moment. I looked at the video regarding the poor UI and although I am in no way impressed with the UI, but it does not seem like an issue. It’s pretty step by step process definition/configuration. Like UIPath, the software is being configured by back office IT folks after walking through a process with the business partner. It is not intuitive or easy enough to uses for business users directly, and I don’t expect that will change any time soon. Too many features would have to be striped from it to make is “User Friendly” enough for anyone to use, but simplification of the UI and configuration steps is definitely something that should be continuously worked on in R&D. One thing that was an issue with UIPath, and may also be for Blue Prism, is its reliance on the screen design of any application process for which it mimicked a human at the keyboard. If the applications UI screen changed, the automation scripts had to be reworked and deployed to production. This meant the RPA team needed to work closely with the application teams so they could proactively revise their scripts as application enhancements & upgrades were released. Perhaps some dev/ops innovations have already occurred in this area?

I also think it could be a good acquisition opportunity, particularly for a large US technology company looking to expand internationally, given 75% of sales are outside the Americas.
I opened a 5% position with Blue Prism and will be keeping an eye on UIPath as well. As discussed, I think UIPath IPO can only help Blue Prism’s valuation (IMHO for everything above….)

-Steveo

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#17

I’ve managed the implementation of a UIPath workflow. I do agree with your assessment that the UI itself is complex; however there is a significant (not a majority) set of fairly ridiculous requirements in automating legacy user processes that demand a very wide array of features that have to be developed and tested to behave properly and nearly perfectly - especially in financial services.

For example:

  • take an inbound claims report email that comes from outside the company and “couldja just” upload this to the claim folder in our system?
  • crawl the content of the email and
  • detect the claim number, if it’s not there what do we do?
  • detect what type of document it is
  • gee how about interrogating the UI of the claims system for me using some information from the email, find the claim, paste it to the clipboard, put it in to the script data…
  • click the action in the claims system to add the document
  • fill in all the metadata you detected from the content of the email and
  • save the document.
    these rules have not gotten simpler in 30 years of financial services; UIPath (and I assume BPRM) are complex environments because the stuff they are asked to automate and the rules they are asked to follow is also complex.

Things like : “take the value of this cell from this spreadsheet and type it into this field on this other screen” are simple, and more successful - and tools like Selenium are even better for that.

6 Likes
#18

I’ve taken a small position in Blue Prism buying OTC. Is there a better way to acquire shares? The market seems very thin.

1 Like
#19

From the figures you gave, Blue Prism grew from $9.6 million to $101 million in THREE YEARS!!! Thats over ten times in three years !!! Over 1000% its starting size in three years! That doesn’t sound like a pace that can be continued and slowing seems obligatory. And who knows what $5 billion market means. It could be someone’s estimate of TAM (which is obviously growing rapidly)

Saul,
Many of our other SAAS stocks seem to be at 80%+ rev growth even at a TTM rev of $400-$600M. Compared to that Blue Prism seem to be already slowing to <80% at a TTM of $129M. In a fast-growing market, I like to see the market leader at least keep its market share. If not, that is a concern.

Also, it appears that the Thoughtonomy acquisition has helped bump the rev in 2020. In their latest EC they say:

“Thoughtonomy has subsequently been rebranded as Blue Prism Cloud”
“Blue Prism Cloud contributed £5.5m to the 1H20 recognised revenue”

They also say " For the twelve months to 30 April 2019, Thoughtonomy had reported revenues of £9.8m "

So, the £5.5m in 1H20 can be considered as due to Thoughtonomy. Excluding that the organic rev for 1H20 was only £63m or +56% growth. Of course, you have to view this slower growth in light of Covid much like AYX.

On a more positive note, the Thoughtonomy acquisition has helped the company offer a Cloud-based SAAS solution. On this basis, there is a chance that rev. growth rate may stabilize and even reaccelerate. This is what they say about the acquisition:

Thoughtonomy is a software-as-a-service (SaaS) based product and cloud services business that combines Blue Prism’s robotic process automation (RPA) platform alongside additional embedded and integrated artificial intelligence (AI) and cloud capabilities, including Computer Vision, Natural Language Processing and Machine Learning to provide a cloud-based, on-demand, intelligent automation platform. Additional features include readyto use channel interfaces such as chatbots and web-forms and an integrated AI-enabled digital workforce manager.

The RPA market opportunity exists in both the enterprise (>10,000 employees) and mid-tier (<10,000 employees). These tiers of the markets have distinct needs in terms of product functionality, with enterprise users often requiring full time RPA resource, either on servers or in the cloud, and mid-market looking to a cloud-based, ondemand software-as-a-service (SaaS) model. Blue Prism has previously focused its product and resources into creating a strong on-premise connected-RPA product which addresses enterprise requirements.

The acquisition of Thoughtonomy provides Blue Prism with a productised solution which simplifies and broadens access to its connected-RPA platform via turnkey SaaS capabilities, thereby opening up the mid-tier of the market. Blue Prism anticipates that cloud-based RPA deployments will in time become increasingly required by enterprise users and, while it currently has numerous cloud-based deployments of its enterprise solution, the development of cloud-based products to further address the market requirements is a clear part of its product roadmap. The acquisition of Thoughtonomy, in particular its cloud orchestration tools, resources and skills, will feed into these product initiatives.

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#20

Many of our other SAAS stocks seem to be at 80%+ rev growth even at a TTM rev of $400-$600M. Compared to that Blue Prism seem to be already slowing to <80% at a TTM of $129M. In a fast-growing market,

Hi Texmex,
That’s part of why I would take a maximum of a 3% position. But, on the other hand, they are completely under the radar, and selling at an EV/S of about 7, while other stocks of ours growing at comparable rates are at 20 or 30. That gives it room to triple or quadruple in price just to catch up (of course it may never catch up, but that’s something which we will have to see.)
Saul

7 Likes
#21

https://www.bloomberg.com/news/articles/2020-02-26/your-robo…

UiPath, a software maker, was valued at $7 billion last year with $360 million in annual recurring revenue last year. PS ratio is roughly priced around 20 based on these two numbers.

Though we did not know the growth rate difference of UiPath and Blue Prism and the variations of other metrics, we could confidently assume Blue Prism should be priced much higher than PS ratio of 8.

IMHO, Blue Prism seems to be a good bet from evaluation point.

1 Like
#22

lol I think this board is responsible for the 7% bump today. Crazy how much $$ some of ya’ll have.

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#23

UiPath, a software maker, was valued at $7 billion last year with $360 million in annual recurring revenue last year.

BP had 2019 rev of $101M. Uipath had $360M in ARR in 2019. So, UI were at least 3.6 times bigger than BP in 2019. Per Ethan’s post, UI was only 1.7 times bigger than BP in 2018. If you look at Gartner and Forrester the last few years UiPath has moved more and more towards top right while BP has regressed a bit between 2018 and 2019. Of course, this was before the Thoughtonomy acquisition.

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#24

Ethan,

What a tremendous write up. I wish Blue Prism had spent as much time and thought on their web site and videos. I am wondering if a company that gets these things wrong can get other things right.

I went to one of the videos hoping to hear a story about how the software made money for an organization, and then some details about what it did. Instead I got a bunch of double speak that quickly put me to sleep. I also found many broken links and dead ends on the site.

This ought to be such an exciting project to sell, but even the website is missing opportunities.

I took a starter position, which for me is below 1%. But that amount keeps me focused on the company and keeps me digging until either I sell or add.

Of all the things I have seen so far about the company, One thing I like, is the employee expansion. As a former business owner, I learned to expand only after I had more work/business than could be handled by the current workforce. I am hoping that is the case here, versus speculative expansion.

Back to digging.

Thanks again for a terrific write-up.
Gordon

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