| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3443 Registered: 05-2011 Posted From: 65.35.45.47 Rating: N/A |
COUP Coupa Software trading more than a coupa points lower despite reporting a surprise profit (250.81 -21.13) Coupa Software (COUP -8%) is trading more than a coupa points lower today even though the company reported impressive earnings last night. Coupa, which provides business spend management software, surprised investors with a profit in Q4 (Jan) after guiding to a loss. Coupa also reported significant revenue upside. However, digging deeper into the report reveals a few trouble spots. Why is the stock lower despite the strong Q4 upside? The guidance was mixed: Coupa expects a Q1 (Apr) loss while the market was looking for breakeven. As was the case with Smartsheet (SMAR), Coupa tends to lowball guidance a bit, so this target does not concern us too much. However, what's more concerning is that the upside revenue guidance was pretty modest in comparison to last quarter's sharply higher guidance. Again, Coupa tends to be conservative on guidance, but this may be spooking investors a bit. Non-GAAP gross margin in Q4 was 70.1%, well above prior guidance of 67-68% but 250 basis points lower than Q3. In November, Coupa acquired a company called LLamasoft that provides AI-powered supply chain design and planning software. This was a large purchase at $1.5 bln, and its $100 mln in annual revs represents a big addition for Coupa, which posted $378 mln in revs for the first nine months of 2020. Given the size of LLamasoft and its lower margin profile, Coupa expects this deal to lead to meaningful gross margin compression for most of FY22. Part of the problem is that COUP plans to convert Llamasoft's legacy on-prem license arrangements to the cloud. License revenue is recognized upfront whereas cloud revenue is recognized ratably over time. Therefore, cloud conversions will create a decrease in revenue on the front end. This may be why COUP's revenue guidance is a bit muted. Coupa also made a few concerning comments on the call. While the company sees the vaccine rollout as a positive, management concedes that a return to normalcy will still take time. Coupa went on to say that many customers and prospects continue to operate with caution, making it difficult to predict the timing of deal closings. We, and likely many investors, would have expected more upbeat language with there being a light at the end of the tunnel for the pandemic. Also, tech stocks are weak today generally ahead of the Fed Statement at 2 p.m. ET. Coupa Software is not a name most investors are familiar with. It was a huge mover through much of 2H20, although it has pulled back in 2021 as investors rotate out of tech stocks. Nevertheless, we have been fans of Coupa since its IPO debut in 2016. It's still a fairly small company, but it sees a lot of runway for growth, as only 20-30% of spend is actually being managed through an IT platform while the majority is still being managed through paper, fax, email, phone calls, etc. The main concern we have for COUP is its lofty valuation, trading at a current P/S of 27x, but the high valuation results from COUP seeing a multi-billion dollar marketplace that is just starting to be tapped into. The problem is that this valuation can be used as an excuse by investors to exit a stock when any perceived weakness appears, as was the case here on account of COUP's guidance and commentary. |