Artificial intelligence is quickly becoming the bedrock of a business's operations. AI enables businesses to optimize their workforce, marking sure their employees are the most efficient and accurate they can be.
Artificial intelligence likely won't take over the world and put every human out of employment, but rather it will assist humans so they can be more efficient. Two prime examples of artificial intelligence stocks that are doing this are UiPath (PATH -3.42%) and Docebo (DCBO -2.47%). Here's why you can hold these two stocks for decades.
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UiPath: Building AI for automation
UiPath is making enterprises more efficient by creating robots to perform automated tasks. IT professionals are often strung up doing low-skill, automated tasks, which can feel pretty useless when there are tougher tasks that need to be completed. UiPath allows these professionals to be freed up to go do those high-skill tasks. The company does this by using robotic process automation (RPA) -- which is simply technology that allows UiPath to build and deploy a software bot that automates simple tasks.
UiPath's bots are not built to take away jobs and solve everything but rather free up the efficient worker and do the work, then have a human validate it. UiPath's software bots are smart and able to do anything from minor automated tasks to expert development -- only needing humans for approval and accuracy assurance.
UiPath's bots can work independently, allowing workers to focus on other important tasks, and this has attracted plenty of customers. Businesses like Nasa are UiPath customers, along with 9,100 other customers.
The company's Q2 2022 -- the calendar quarter ending July 31, 2021 -- results were strong, posting revenue growth of 40% year over year to $196 million with a non-GAAP 86% gross margin. This high margin could allow the business to be profitable in the future, but the company is spending 90% of its gross profit on sales and marketing. This has resulted in a net loss of $100 million for its fiscal quarter and a negative free cash flow of $28 million for the first two quarters of its fiscal year.
The sales and marketing are worrisome: In this quarter, UiPath's S&M expenses grew faster than revenue, indicating that it spent 60% more in S&M only to get 40% more revenue. However, if the company can attract customers, they tend to expand their relationship with UiPath. The company's net retention rate is 144%, meaning customers from one year ago are now spending 44% more today.
The company has an addressable market of $30 billion by 2024, and considering the company is only expecting $879 in full-year 2022 annual recurring revenue, it has barely scratched the surface of its industry. There is no doubt that AI will become an increasingly important part of the business world, and UiPath is smack dab in the middle of this shift.
Docebo: Bringing AI to training
Docebo is focusing on a smaller, yet important, segment of the enterprise. Docebo is using AI to enable businesses to both build and deploy training and learning modules for their employees. With Docebo, companies can upload documents and its AI will create a learning module for their employees.
Then, Docebo can deploy these learning modules to employees, tracking their progress and using AI to make sure the training is effective. For example, if an employee is getting every question correct and seemingly knows the information, Docebo can recognize that and move on to new material, saving time and making employees happy.
What is critical is that Docebo is not simply training modules for employees, but it is also used by companies to teach its employees new information to further their careers. Fifty percent of Docebo customers use its software to create learning solutions that are outside of the internal training use cases.
Docebo has racked up over 2,600 customers, and it grew its Q3 2021 revenue by 68% from the year-ago quarter to $27 million. Subscriptions make up 93% of Docebo's revenue, and its average contract value reached $39,300, an increase of 23%. Despite being such a small company, it's profitable. Docebo earned $700,000 in net income in Q3, and the company is basically at a break-even point on free cash flow (FCF) -- just losing $1 million in FCF last quarter.
The company has won multiple awards for its superiority to traditional learning management systems, and Docebo is growing twice as fast as the industry. Despite this, there are some risks. First, the company is not cheap at 26 times sales. Second, there are relatively low switching costs in this market. While Docebo is becoming the disruptor today, it takes relatively little effort for a company to move away from Docebo if a better mousetrap comes along.
While there might be low switching costs, Docebo is certainly grabbing the attention of enterprises in the market. Customers are rapidly moving to Docebo, and these customers are seeing broad success from their employees with these new learning tools. This company is disrupting a market that could become $30 billion by 2025, and if it can continue bringing immense value to its customers, Docebo's growth could be monstrous.
