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Coupa's (NASDAQ:COUP) Q4 Sales Top Estimates But Stock Drops 19.8%


Full Report / March 14, 2022
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Spend management software maker Coupa Software (COUP) reported Q4 FY2022 results beating Wall St's expectations, with revenue up 18.1% year on year to $193.2 million. However, guidance for the next quarter was less impressive, coming in at $190 million at the midpoint, being 3.12% below analyst estimates. Coupa made a GAAP loss of $93.9 million, down on its loss of $61.3 million, in the same quarter last year.

Coupa (COUP) Q4 FY2022 Highlights:

  • Revenue: $193.2 million vs analyst estimates of $186.1 million (3.82% beat)
  • EPS (non-GAAP): $0.17 vs analyst estimates of $0.05 ($0.12 beat)
  • Revenue guidance for Q1 2023 is $190 million at the midpoint, below analyst estimates of $196.1 million
  • Management's revenue guidance for upcoming financial year 2023 is $838 million at the midpoint, missing analyst estimates by 4.65% and predicting 15.5% growth (vs 35% in FY2022)
  • Free cash flow of $60.5 million, up 114% from previous quarter
  • Gross Margin (GAAP): 60.3%, up from 51.3% 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 very strong over the last year, growing from quarterly revenue of $163.5 million, to $193.2 million.

Coupa Total Revenue

This quarter, Coupa's quarterly revenue was once again up 18.1% year on year. We can see that revenue increased by $7.48 million in Q4, up on $6.57 million in Q3 2022. While we've no doubt some investors are looking for higher growth, it's good to see that quarterly revenue growth is accelerating.

Guidance for the next quarter indicates Coupa is expecting revenue to grow 13.8% year on year to $190 million, slowing down from the 40% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $838 million at the midpoint, growing 15.5% compared to 35% increase in FY2022.

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 60.3% in Q4.

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 $60.5 million in Q4, up 59% year on year.

Coupa Free Cash Flow

Coupa has generated $155.5 million in free cash flow over the last twelve months, an impressive 21.4% 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 Q4 Results

With a market capitalization of $7.42 billion Coupa is among smaller companies, but its more than $729.4 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We enjoyed seeing Coupa’s improve their gross margin materially this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that Coupa's revenue guidance for the full year miss analyst's expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results could have been better. The company is down 19.8% on the results and currently trades at $72.01 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 strong, though we don't expect it to maintain historical growth rates. 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 7.6x, 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.

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