Is Blue Prism a stock worth considering?

Today I am taking a look at a rare animal — a British tech that is listed on the stock market and which sits smack bang at the centre of the so called ‘fourth industrial revolution’, the company is called Blue Prism, and it operates in the robotic process automation business.

Article updated: 8 March 2019 10:00am Author: Michael Baxter

Six months ago, I had never heard of RPA — or robotics process automation. Then I heard about a company in this space called UiPath that had seen annual recurring revenue increase from $1 million to $100 million in just 21 months. It claimed to be the fastest growing enterprise software company in history — and has its target: achieving a robot on every desk.

Then I found out that another RPA company called Automation Anywhere that has grown at a similar pace, and also claims to be the fastest growing enterprise software company in history.

There must be something in this, I thought. What a shame neither of these companies are listed on the stock market. One of UiPath’s main investors is Alphabet, so you can sort of invest in the company by buying shares in Alphabet, but investing direct is an option that typically alludes your average humble private investor.

But there is a third major player in this space — a firm called Blue Prism. There are of course many others too, the RPA market is rapidly growing. But UiPath, Automation Anywhere and Blue Prism are the big three.

Blue Prism is British and listed on the stock market in the UK — UiPath was founded in Romania and Automation Anywhere in California.

The RPA market

Grand View Research has forecast that the RPA market will be worth $3.11 billion by 2025, but is expected to see a compound annual growth rate of 31.1 per cent between now and then.

You might be forgiven for asking, what is RPA? I’ll tell you what it isn’t. It isn’t a physical robot. Rather it is software that exists to automate tasks or processes.

It is especially applicable to processes that follow a set pattern. It is especially relevant in industries such as banking, which are process driven, or in any business which is heavily regulated — and requires certain processes to be followed in order to adhere to the regulation.

There is another way of putting it. RPA automates the boring work. (Its supporters claim that RPA won’t destroy jobs, rather let workers focus more on the more interesting parts of their job.)

There are two types of RPA — unattended, which is about automating processes end to end, typically back‐office, and attended which works alongside individuals, supporting them in tasks.

Blue Prism specialises in unattended. But the company does not see it like that, it considers so called unattended RPA as proper RPA, it doesn’t like the term attended RPA, seeing it as a misnomer — instead it calls it desktop automation, which it sees as little more than Excel macros.

UiPath and Automation Anywhere are in both camps. The original attended RPA company is a firm called NICE, and which is listed on the NASDAQ.

Hype

The RPA market has its critics — people who say RPA is just overhyped. Indeed, Gartner has RPA riding at the top of its hype cycle.

I think there are two problems here. Firstly, human nature being what it is, new technologies often do get overhyped; then we see a kind of realisation of this, and negative sentiment sets in; but in the longer term, sometimes and with some technologies, the hype becomes reality. We saw this with dotcoms — hype in the late 1990s, crash in the early noughties, but then companies like Apple and Alphabet made profits that suggested the initial hype was justified — but misdirected.

The second problem is complexity.

Blue Prism puts emphasis on this. Its technology is not so simple to apply, it says. To use it effectively requires training and time investment. But the benefits easily justify these upfront internal costs. Furthermore, it argues that other companies, with their unattended robots, emphasising how simple their products are, have muddied the water.

Valuations

Blue Prism is valued at £1.2 billion, leading to claims by some observers that it is wildly overvalued.

In 2018 revenue rose 125 per cent, hitting £55.2 million.

Now there are two ways of looking at this. One way: A valuation of around a billion pounds for a company that turned over £55 million, seems mighty steep. Second way: a company that more than doubled revenue in a year should carry a big valuation relative to turnover.

Looking beyond the hype

Clearly, some techs are overvalued. There are reports going around that Uber rival Lyft may never make a profit.

But Blue Prism operates in the B2B market. When LinkedIn was floated, I argued here against it being overhyped because of its position in B2B. I was criticised for doing so. But when it was bought by Microsoft, shares were valued at more than double the price after LinkedIn’s first day of trading.

Clearly, investing in stocks such as Blue Prism carries risk — and no one can say for certain what its future is. Just remember, maintain diversification. Don’t pour all your money into one sector, let alone one stock.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

See what else we have to say