Shares of Coupa (COUP), a provider of a cloud-based corporate spend management software, have fallen 6% over the past month amid the rout in tech and software stocks. Expand Coupa's chart a little wider, the stock's 27% decline in six months, against 14% rise in the S&P 500, is even more magnified. But is the recent decline a buying opportunity?
The company is set to report fourth quarter fiscal 2021 earnings results after Monday’s closing bell. Down 32% year to date, compared to 12.6% rise in the S&P 500, investors have become concerned not only about Coupa’s valuation compared to the rest of the sector, there is also the fear of slowing growth in the quarters ahead. Aiming to become a BSM (Business Spend Management) leader, Coupa makes money by analyzing large quantities of corporate transactional expense data, looking for spending patterns and areas of inefficiency.
The company’s platform platform helps customers with actionable insights that can lead to improved inventory management, smarter purchasing decisions, while lowering expenditures. With its total addressable market measured at $56 billion and growing, there is still a massive opportunity for Coupa to expand, given the projected increase in digital transformation spending which analysts forecast will outpace overall IT budgets in 2021.
Not only are corporations becoming more integrated, which bodes well for Coupa, the company’s full-year 2020 revenue reached just $541 million, highlighting the nascent nature of the market relative to the $56 billion potential. Nevertheless, on Monday Coupa’s revenue and earnings growth must match these expectations. The market will also want Coupa's management to provide bullish guidance to instill more confidence in the share price.
In the three months that ended April, the San Mateo, CA-based company is expected to lose 19 cents per share on revenue of $152.62 million. This compares to the year-ago quarter when it earned 20 cents per share on revenue of $119.21 million. For the full year, ending January, earnings the loss is expected to be 25 cents per share, down from earnings of 77 cents per share a year ago, while full-year revenue of the $679.21 million would rise 25.4% year over year.
Coupa's BSM platform, which includes a comprehensive suite of procurement solutions that helps businesses assess expenditures from things such as sourcing, invoicing as well as travel/expense management, enables customers to realize stronger and more targeted working capital by de-segmenting organizational silos to better assess risks across the organization. It’s for this reason, among others, analyst Brent Bracelin at Piper Sandler recently upgraded the stock from Neutral to Overweight, raising the price target from $300 to $315.
The analysts cited the "largest back-office investment cycle since Y2K,” saying Q1 could be the trough for Coupa's calculated billings and subscription revenue acceleration. In other words, the bottom could be in for the stock with projected growth staring in Q2, which bodes well for long-term upside revenue revisions. For that matter, growth was seen in the company’s top- and bottom-line beat in Q4, featuring growth within each business segment, highlighted by Q4 revue surging 47% year over year to $163.54 million, topping estimates by $18 million.
Notably, Q4 subscription revenue rose 37% to $135 million, accelerating from 31% rise in Q3. Q4 Calculated billings — a closely-watched metric among software companies — surged 49% hitting a quarterly record of $270 million. On Monday for the stock to reverse course the market will want Coupa not only to repeat this performance, but beat it.
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