Coupa Software (COUP 64.51, -4.29, -6.24%) is trading lower despite reporting nice Q3
(Oct) upside results last night. Coupa is a cloud-based provider of business
spend management (BSM) software. Its platform provides greater visibility into and control over how
companies spend money with the goal of saving money.
Indirect spend is particularly difficult to manage due to inefficient employee spending behavior and disparate systems that obstruct spend visibility. The core of COUP's platform consists of procurement, invoicing and expense management modules that form its transactional engine and capture a company's spend.
Through the Coupa Open Business Network, suppliers of all sizes can interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs. As more vendors use the platform, the platform becomes more useful to clients and it grows the amount of spend under management. COUP sells its product on its own, but also works closely with systems integrators, including KPMG, Deloitte, Accenture, IBM, PwC, and Wipro, to drive enterprise adoption.
Turning to the Q3 (Oct) results, Coupa reported a non-GAAP profit of $0.08 per share, up nicely from a $(0.05) loss in the prior year period. This was much better than prior guidance. COUP had guided to a non-GAAP loss of $(0.04)-(0.01), so to see a profit was a nice surprise. Revenue rose 42.5% yr/yr to $67.5 mln, which also was well above prior guidance of $62-63 mln. Subscription revenue rose 42% yr/yr and 9% sequentially to $60.6 mln. Non-GAAP operating margin improved to 8.5% from -5.0% in the prior year period.
Coupa also issued upside guidance for Q4 (Jan) as the company expects to roughly break even on a non-GAAP basis. The market had been expecting a pretty sizable loss. Revenue in JanQ is expected to be $67.8-68.3 mln, which also is better than expected.
So what's going on? Why is the stock lower despite the nice beat-and-raise and the nice margin expansion?
There was nothing on
the call that stood out to us a big negative. Often, the Q&A session is
where you learn about sell side analyst concerns. However, there was not much in
Our overall take is that this is more of a sell-the-news reaction. The stock had run from around $55 on November 19 to close near $69 yesterday. The stock was up 7% yesterday heading into this report. That is big movement over such a short period of time. Perhaps investors were expecting a big beat so this was not much of a surprise.
In sum, despite the trading action today, this was another very good quarter for Coupa. The company has now posted three back-to-back huge upside quarters. And this quarter they reported a surprise profit which was good to see. From a broader perspective, COUP sees a lot of growth ahead as spend management is still in the early adoption stage. COUP says maybe 20-30% of spend is actually being managed through an IT platform. Most of it still being managed through paper, fax, email, phone calls etc. COUP sees a very sizable multi-billion dollar marketplace that is just starting to be tapped into. Also, COUP remains very excited by the large opportunity and continued traction it's seeing in international markets.