Summary
Coupa Software’s guidance for Q4 points to mid-teen growth rates.
However, the biggest takeaway from Coupa’s Q3 results is that Q4 2022 adjusted billings are only up in the mid-teens.
At 14x forward sales, investors are paying too high a premium for COUP stock.
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AndreyPopov/iStock via Getty Images Investment Thesis
Coupa Software ( COUP ) is a business spend platform. It’s a procurement platform that gives businesses control and visibility into their spending. Coupa is a global SaaS platform that covers supply chain, procurement, and finances. From invoicing to payments and contracting, Coupa provides users with insight into the movement of resources through organizations.
However, it appears that as Coupa laps its very strong growth from last year, Q4 2022 will meaningfully struggle to impress this time around.
Presently, investors are asked to pay 14x forward sales, which is too expensive for what’s on offer. Investment Sentiment Facing Coupa
Data by YCharts The graph above is a representation of Coupa. But it could just as well be a representation of countless other high-growth names. The market is voting with its feet and shedding overpriced names.
Back in September , I said: At 23x next year’s revenues, I don’t find this stock particularly cheap and have nagging questions over its performance, or more concretely, what its revenue growth rates actually sustainably can stabilize at. And that’s the thing, the stock isn’t that cheap. And in this report, there are a lot of pesky detractions that make it difficult to be a cheerleader for this stock.
Note, I’m only discussing fiscal year results, not calendar year. Coupa’s Revenue Growth Rates Fizzle Slightly
Source: author’s calculations, **company guidance
The graph above poses a problem. Why? Because on the one hand, Q3 2022 was much stronger than anyone expected. So, that’s awesome, right? What’s the problem?
The problem is that as we look ahead to Q4 we are once again reminded that Q4 is going to struggle to go up against the same period in the prior year.
And this is the exact problem that I highlighted in my previous article: [As] we look slightly further out into Q4 there’s a meaningful drop in its growth rates expected on the horizon. Even if we make the case that management is being overly conservative to allow for sandbagging of its Q4 results, and the final results end up closer to 20% over even an impressive 22% y/y growth rate, we are still left with a 2,000 basis deceleration from Coupa’s run-rate in H1 2022. Any way we consider Coupa, its growth rates are fizzling out. Why Coupa? Why Now?
( Source )
And to be perfectly clear, there’s a lot to like from Coupa. It’s not that I’m totally bearish on Coupa.
Coupa is a Business Spend Management (“BSM”) platform. ( Source )Coupa has three core solutions. It’s aimed at controlling how companies spend money, optimize supply chains, and manage finances.Through one module, companies use Coupa’s procurement offering that oversees how businesses spend. It has a consumer-like interface and helps enterprises have insight into their siloed Enterprise Resource Platforms (”ERPs”).Another module is its Coupa Open Business Network. Think about it this way, as companies gain global scale, as a corollary of that, consider the increase in complexity. You need a platform that can assist businesses to simplify their supply chain processes and forecast their inventory demands.I’m confident that I don’t need to be the one to inform the reader of all the problems that inadequate supply chains have caused to businesses. Having a robust planning platform that allows for seamless connection between customers and suppliers is key. ( Source ): October 2020, Gartner Procure-to-Pay (P2P) However, despite many promises, Coupa’s profitability isn’t gaining enough traction. Profitability Profile Leaves Much to be Desired As I highlighted a few months ago , for Q4 2022 management is looking to outsource part of its professional services.What this means in practical terms is that the business will have a nudge less top-line growth, at approximately $7 million. However, it had been hoped that it would start to strengthen its bottom line profile.However, that’s not quite the case. In fact: For context, in Q3 2022, Coupa’s non-GAAP operating margin was 11.6% compared with 11.0% in the same period a year ago, a 600 basis point improvement y/y, which is great. However, looking ahead for Q4 2022 Coupa […]
source Coupa Software: Investors Underreact To Poor Billings
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