Blue Prism (LSE: PRSM) is a company operating in the intelligent automation, or robotic process automation (RPA), space. It has just revealed a chunky loss but if we look closer, I think it’s misunderstood by the markets.
It all boils down to recurring revenue and to illustrate that, I’ll use an analogy with an old-fashioned life assurance salesperson. It might take a lot to secure a new customer, but once that’s achieved, the salesperson can enjoy the commission for years. Blue Prism has been spending a lot on marketing, that’s the main reason why 2019 saw a big loss. But the revenue that will accrue from new business acquisition could continue for years.
Blue Prism invented the acronym RPA that actually has very little to do with what most of us think of when we hear the word robot. RPA is actually about software and automating tasks, often mind-numbingly dull tasks, often carried out in process-driven organisations such as banks or insurance companies.
RPA has been subject to enormous hype and some backlash too. It’s not necessarily easy for a company to start on its RPA journey, and maybe some RPA companies have promoted the technology too hard, exaggerating its ease of use, creating a degree of disillusionment.
There’s even talk that the RPA industry may actually ditch the acronym altogether to focus on intelligent automation.
Hype?
Blue Prism is the only one of the three major RPA companies to be listed on the stock market. The other two (UiPath and Automation Anywhere) have collectively raised well over a billion dollars.
Such massive fund raising is seen by some as evidence of hype, but it also illustrates how there’s something exciting about the technology in the first place.
It could certainly transform productivity at many companies. Some fear resulting job losses, but the RPA companies themselves talk about freeing staff from soul-destroying tedium.
Blue Prism’s results for the year to the end of October 2019 revealed an 83% increase in revenues to £101m, but its losses before interest, tax, depreciation and amortisation (EBITDA) were £71.9m. Then again, it had £74.1m in net cash at the end of the period.
A loss of that scale might seem worrisome, but bear in mind the long-term benefits from its marketing spend. Monthly recurring revenue (MMR) rose to £10.6m, up roughly two-thirds from the year before.
Part of the loss was also explained by the purchase of another company in this space, Thoughtonomy, giving Blue Prism a stronger cloud presence.
What I like about RPA is that the ‘barriers to exit’ are quite low. Once a company is using a particular system, there’s a good chance it will stay with it. Certainly, client retention rates in this space are very high.
The Blue Prism customer count increased from 992 to 1,677 last year. New clients included Audi, Amazon, Bank of China, Consolidated Edison, the International Monetary Fund, L’Oréal and the United States Department of Justice.
The company expects to upsell its product to many of its customers, and it’s this scaling up of the technology within companies that provides the real opportunity to increase sales at a relatively modest cost. This is the reason why I think Blue Prism shares will go up, eventually.
