Coupa’s Opening Quarter Dives Deeper Into Subscription Growth; FVE Down to $108

Business Strategy & Outlook

Coupa Software is a cloud-based business spend management, or BMS, platform that allows firms to monitor, control, and analyze expenditures to lower costs and improve operational efficiency. Coupa’s solutions are designed to manage all spend, and inform each step of a transaction’s process, from idea inception, supplier evaluation, and procurement, to invoicing, and finally to payment collection. With a platform of over 2,500 businesses and over 7 million suppliers, Coupa has built a robust self-reinforcing ecosystem of AI-informed spend management. Narrow-moat Coupa is perceived to have a long growth runway ahead as it continues to make strategic investments to expand its platform and spend management use-cases. In a go-to-market model that focuses on co-selling deals with system integrators, Coupa has been able to expand its market reach significantly. As back-office digital transformations are accelerating and Coupa remains the market-leading cloud BSM vendor, Coupa’s partners are expected to increasingly advance Coupa’s adoption throughout businesses as they guide their clients through digital transformation initiatives.

As Coupa has long focused on a broader source-to-pay strategy, offering solutions that far exceed the functionality of its original transactional core, the company has made a high level of investments to build out its platform into a more holistic spend management tool. As the firm introduces new modules, Coupa will benefit from alignment with a larger number of spend use-cases, greater suite synergies, and more cross-selling opportunities. Further, a growing community will reinforce Coupa’s AI-based community intelligence offering, providing higher value prescriptive insights to optimize spend decisions. Coupa’s moat is supported by strong user metrics, with gross retention above 95% and net retention exceeding 110%. While adoption of Coupa’s BSM platform has grown rapidly, cumulative spend under management has far outpaced sequential customer and recently surpassed $3 trillion. Coupa’s market opportunity is considered to be significant as it is pioneering a largely untapped market opportunity in cloud-based unified spend management.

Financial Strengths

Coupa is in a decent financial position. As of January 2022, Coupa had $729.5 million in cash and marketable securities versus $1.6 billion in convertible debt. In June 2019 and June 2020, Coupa issued $805 million of convertible senior notes, due 2025 and convertible at $159.60 per share, and $1.38 billion of convertible senior notes, due 2026 and convertible at $296.45 per share, respectively. Coupa has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects. While Coupa has invested heavily in acquisitions over the past five fiscal years, allocating well over $1.0 billion to inorganic investments, acquisition activity is expected to slow as the platform is virtually complete. Coupa does not pay a dividend, nor repurchase stock, and for a young company pioneering a novel offspring under the ERP umbrella, it is only appropriate that the company focuses capital allocation on reinvestments for growth. Even so, the firm has historically demonstrated strong cash flows, with free cash flow margins averaging 16% over the last three fiscal years. While cash flows were pressured in fiscal 2021 and 2022 as a result of the COVID-19 pandemic, healthy free cash flows are expected in later years.

Coupa reached non-GAAP profitability in 2019, posting both a positive non-GAAP operating margin and positive non-GAAP earnings from then on. The company has averaged a non-GAAP operating margin of 9.9% since 2019, and as the company scales, non-GAAP operating margins are projected to reach into the high-20% range at the end of the 10-year forecast period. These positive results should translate to profitability on a GAAP basis in the future as well.

Bulls Say

Coupa has strong user retention metrics, with gross retention above 95% and net dollar retention north of 110%.

As Coupa expands its platform both organically and inorganically, increasing suite synergies are anticipated to accelerate cross-selling activity, further entrenching customers within Coupa and creating greater monetization opportunities.

Continual annual subscription price point increases reflect the stickiness of Coupa’s modules and suggest significant competitive differentiation in winning new deals over less expensive alternatives.

Company Description

Coupa Software is a cloud-based provider of business spend management, or BSM, solutions. Coupa’s BSM platform provides visibility into all spend, allowing companies to gain control over their spending, optimize their supplier network and supply chains, and manage liquidity. The platform’s transactional core consists of procurement, invoicing, expense management, and payment solutions, while supporting modules ranging from strategic sourcing solutions to supply chain design and planning solutions round out the comprehensive spend management ecosystem.

(Source: Morningstar)

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