Coupa Software Inc (NASDAQ: COUP) stock is on the way upwards this morning, climbing after investors were impressed by the company’s second quarter earnings.
But is COUP stock a good investment?
What is Coupa Software Inc?
Coupa Software Incorporated is a provider of a cloud-based business spend management platform that connects its customers with suppliers worldwide.
The company aims to provide visibility into and control over how companies spend money, optimize supply chains and manage liquidity, as well as enables businesses to achieve savings that drive profitability.
Coupa’s platform offers procurement, invoicing, expense management and payment solutions that form the transactional engine for managing a company’s business spend, as well as specialized solutions which include strategic sourcing, contract management, contingent workforce, supplier risk management, supply chain design and planning, treasury management, and spend analysis.
The company serves businesses in various industries, including healthcare and pharmaceuticals, retail, financial services, manufacturing and technology. The company markets its platform primarily through a direct sales force.
Coupa Software Incorporated was incorporated in 2006 and is headquartered in San Mateo, California.
COUP Stock Financials
At the time of writing, COUP stock was trading at $62.00. Across the year to date the price has declined by 62.21%. The past 12 months have seen the stock hit a high of $270.79 and a low of $50.54.
COUP stock has a price to sales ratio of 5.62 and a price to book ratio of 12.80. These compare with software and programming industry averages of 7.39 and 9.76 respectively, according to CSIMarket. Between them, these appear to indicate that the stock is fairly valued.
Coupa Software does not provide shareholders with a dividend.
COUP Q2 Earnings
The company achieved total revenues were $211.1m, an increase of 18% compared to the same period last year. This increase was driven by a rise in subscription revenues, which had climbed by 23% to reach $192.7m.
However, professional services revenues declined from $23.0m to $18.4m across the same time period.
Net loss was lower compared to the previous second quarter, having dropped from $86.7m to $70.6m. This was due to the increase in revenue and a significant reduction in interest expenses, with total operating expenses for the period having climbed from $154.3m to $191.4m. This jump in expenses has been propelled by rising sales and marketing expenses, which rose to $103.2m from $76.3m.
Additionally, the company’s board of directors have confirmed a share repurchase programme of up to $100m of the company’s stock. The program is currently set to expire on 1 September 2023 and will be funded by available cash and cash equivalents.
The company had cash and cash equivalents of $528.0m at 31 July 2022.
Additionally, the company’s outlook for the full year is as follows:
Total revenues are expected to be $838.0m to $844.0m.
Subscription revenues are expected to be $766.0m to $771.0m.
Professional services and other revenues are expected to be approximately $72.0m to $73.0m.
Non-GAAP income from operations is expected to be $62.5m to $68.5m.
Non-GAAP net income per diluted share attributable to Coupa Software Incorporated is expected to be $0.37 to $0.44 per share.
Diluted weighted average share count is expected to be approximately 87.5 million shares, assuming no shares are purchased in the share repurchase program.
COUP Growth Potential
The business currently serves customers around the world and there are some concerns that its scope for increasing market share could be limited.
However, Coupa Software’s expansion efforts have a focus on Latin America at present, with the business having opened its first offices in the region in July, with new premises located in Mexico City, São Paulo, and Bogotá.
The company hopes its presence in the region, along with pressure to digitize in the wake of COVID-19, will accelerate growth in the region.
Additionally, the company believes that the uncertainty business around the globe currently face with inflation, market challenges and supply chain disruptions will stimulate further customer growth in other geographies as businesses look for new tools to survive.
COUP Investment Risks
The company has significantly increased its sales and marketing spend since last year, and so far this appears to have resulted in a jump in revenue. However, it could be a sign the business is finding it harder to access customers and may need to shell out more and more over the coming quarters.
This is a risk which appears to have already been noticed by some analysts. For example, when Goldman Sachs downgraded its rating for the stock from Sell to Neutral in May 2022, analyst Gabriela Borges indicated that the business could struggle to gain market share.
That’s because the business is facing increasing competition from fresher faces in the business spend management software market. Companies like Taulia, which was acquired by German software giant SAP (NYSE: SAP) in March could limit the company’s growth prospects.
Is COUP Stock a Good Investment?
Coupa Software Inc stock looks on the surface to be an attractive investment. The business is achieving strong revenue growth despite some challenging conditions and high competition. There is concern that this competition could limit the company’s potential, but its outlook for the current year is still strong.
Additionally, customers looking for new tools to help them survive in the current difficult economic conditions could give Coupa Software continued growth.
The stock is trading at a huge discount from the over $200 price it sat at 12 months ago. While this is not rare, particularly among tech stocks, Coupa’s strong earnings could make the current sub-$65 price seem very cheap.
However, risks remain due to a competitive marketplace and the potential for companies to sacrifice subscriptions to Coupa Software as part of cost-cutting measures.
According to analysts listed in the Wall Street Journal, Coupa Software has a consensus analyst rating of Overweight, with an average price target of $77.35. Even so, three of the 29 analysts covered have Sell ratings for the stock.