Appian Gets Into Software Robotics With First-Ever Acquisition

After a strong 2019 for Appian (NASDAQ:APPN) — shares ended the year up 43%, although they had been up far more at one point — the low-code software stock is showing some signs of strength again. It’s just over a week into 2020, and Appian has surged 13% higher.

Wild swings in value over short periods of time are the norm for small stocks like Appian, but investors are always keen on a reason for the action. Often there are no answers, but this latest jump is likely tied to the news that the company recently made its first-ever acquisition: Robotic process automation (RPA) company Novayre Solutions, developer of the Jidoka RPA platform.

Combining two little-known techs to make a little-known tech powerhouse

Low-code, RPA, automation platforms … what is all this stuff? It may not exactly be an everyday topic for most, but all of these technologies are important tools for software developers and IT teams as the world goes digital.

A group of office workers gathered around a computer monitor.

IMAGE SOURCE: GETTY IMAGES.

First let’s talk low-code, Appian’s bread-and-butter. The company operates a cloud-based low-code platform — an environment where a software developer can build an application using pre-written lines of code. Instead of needing to redundantly write out commands line by line, many functions of a software application can be built in small chunks and stored for later use. Developers can then drag-and-drop that function into the new application they are working on presently. Think of low-code as similar to a set of manufacturing forms; no need to hand-build the same components over and over again when the whole process can be sped up with some old-fashioned automation.

Appian is adding RPA to the mix now, a different but adjacent field within the world of software. RPA is a virtual robot — that is to say, a software-based robot, versus a physical one — that can be programmed to interact with a piece of software just like a real-life human would. And why would an organization want to employ that? Many human interactions with software-based operational functions are repetitive and monotonous. Using the manufacturing analogy again, think of an assembly line worker pressing the same button over and over again all day. Why not employ a robot to liberate the human from such a soul-crushing task?

And that’s the beauty of RPA. It saves organizations money by automating some parts of their digital workflow and frees people to perform higher-order functions. All sorts of industries can benefit, from financial services to healthcare to energy. Thus, when Appian integrates Jidoka into its platform, it is aiming to be a “one-stop-shop for automation.”

Why Jidoka, and why now

Jidoka RPA, the platform that’s the responsibility of the Novayre Solutions acquisition, is a tiny robotic process company — although it’s currently the highest-ranked RPA solution on Gartner‘s Peer Insights user review site. But how small? Appian said financial terms are not being disclosed, usually cryptic language for “not very much money.”

Though details on how much Appian spent were not released, the use of cash is likely a good one since the company had just over $165 million sitting on its books at the end of third quarter 2019. Even if the company continues to run at a loss similar to what it has been this year (adjusted loss of $26.2 million through the first nine months of 2019), that’s years of operating capital. Add in the fact that the company taps capital markets from time to time by issuing new stock, and there’s no reason to worry Appian is headed for insolvency anytime soon.

Of course, issuing new stock dilutes existing shareholders, and generating profits isn’t the top priority right now. Adding Jidoka could still be a good move nonetheless. Low-code software is expected to be an industry worth about $20 billion by the end of 2022, according to researcher Forrester, growing somewhere in the 40% to 50% range each year. Similarly, Forrester also thinks the RPA market will be about $12 billion by around the same time, also growing double-digits over the next few years. With those kinds of numbers, a wide range of vague and variable expectations is forgivable.

To put all that in perspective, Appian is on track to do just $265 million in sales in 2019 and is currently valued at $2.9 billion. It goes head-to-head against some much larger peers when trying to win customer low-code dollars, like Microsoft and salesforce.com, to name just two. If adding Jidoka to the mix has the desired effect, though, this small software automation platform’s growth story is just getting started.

[“source=fool”]