4075

Coupa (NASDAQ:COUP) Posts Better-Than-Expected Sales In Q2, Stock Soars


Full Report / September 06, 2022
Add to Watchlist

Spend management software maker Coupa Software (COUP) reported Q2 FY2023 results beating Wall St's expectations, with revenue up 17.7% year on year to $211.1 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $212.5 million, 0.75% below analyst estimates. Coupa made a GAAP loss of $70.5 million, improving on its loss of $86.7 million, in the same quarter last year.

Coupa (COUP) Q2 FY2023 Highlights:

  • Revenue: $211.1 million vs analyst estimates of $203.9 million (3.48% beat)
  • EPS (non-GAAP): $0.20 vs analyst estimates of $0.09 ($0.11 beat)
  • Revenue guidance for Q3 2023 is $212.5 million at the midpoint, below analyst estimates of $214.1 million
  • The company reconfirmed revenue guidance for the full year, at $841 million at the midpoint
  • Free cash flow of $24.9 million, down 45.2% from previous quarter
  • Gross Margin (GAAP): 60.5%, up from 55.8% same quarter last year

Founded in 2006 by former Oracle executives, Coupa Software (COUP) is a software as a service platform that helps enterprises manage their spending across procurement, billing and business expenses and get a better visibility into how the money is spent.

The software allows a company to set up an internal e-shop through which employees procure all goods and services they need, giving the management control over who they order from. It also offers a central cloud repository for invoices and expense claims and provides an easy to use interface through which employees can manage and resolve both. Coupa then ties all this financial data together and provides reports to help companies find potential inefficiencies and rooms for improvement.

The company continues to expand its capabilities via its robust integration with third-party sales and finance platforms.

The adoption of financial technology software is propelled by an ongoing drive to reduce costs. The combination of rising transactions volumes and global supply chain complexity is driving demand for cloud based spend management platforms able to integrate the two.

Competitors in the spend management space include Workday (NASDAQ:WDAY), SAP (NYSE:SAP), Oracle (NYSE:ORCL) and Basware.

Sales Growth

As you can see below, Coupa's revenue growth has been strong over the last year, growing from quarterly revenue of $179.2 million, to $211.1 million.

Coupa Total Revenue

This quarter, Coupa's quarterly revenue was once again up 17.7% year on year. We can see that the company increased revenue by $14.7 million quarter on quarter. That's a solid improvement on the $3.07 million increase in Q1 2023, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates Coupa is expecting revenue to grow 14.3% year on year to $212.5 million, slowing down from the 39.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 16.9% over the next twelve months.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Coupa's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 60.5% in Q2.

Coupa Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.60 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Coupa's free cash flow came in at $24.9 million in Q2, down 32.3% year on year.

Coupa Free Cash Flow

Coupa has generated $159.4 million in free cash flow over the last twelve months, an impressive 20.2% of revenues. This extremely high FCF margin is a result of Coupa asset lite business model and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Coupa's Q2 Results

With a market capitalization of $4.3 billion Coupa is among smaller companies, but its more than $809.3 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Coupa improve their gross margin this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. Zooming out, we think this was still a good quarter, showing the company is staying on target. The company is up 8.48% on the results and currently trades at $60.63 per share.

Is Now The Time?

When considering Coupa, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Coupa we will be cheering from the sidelines. Its revenue growth has been solid. But while its bountiful generation of free cash flow empowers it to invest in growth initiatives, unfortunately its gross margins show its business model is much less lucrative than the best software businesses.

Coupa's price to sales ratio based on the next twelve months is 4.6x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds from the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.