Morgan Stanley On Coupa: 'Turning Spending Into Savings Isn't Cheap'

Morgan Stanley’s Stan Zlotsk believes Coupa Software Inc COUP “is an enterprise software disruption story combining a large $20B TAM with a long runway of sustainable growth and margin leverage driven by strong unit economics.”

Zlotsky initiated coverage of the company with an Equal-Weight rating and price target of $26.

Stock Expectations

According to a report in the Wall Street Journal, Coupa Software’s shares more than doubled in their IPO, taking the company’s market cap to over $1.5 billion.

In fact, the stock was among the top 18 mid-day gainers on Friday, October 6, 2016.

However, Zlotsky sees limited upside potential for the stock going forward, since the strong positives of the company seem already priced in.

Sustainable Growth

On the other hand, the analyst believes that given “a strong integrated product offering, continual innovation expanding the solution portfolio, a large addressable opportunity and strong market momentum, Coupa should enjoy a long runway of high growth.”

Zlotsky added, "[W]e forecast a 20 percent CAGR over the next 15 years.”

According to the Morgan Stanley report, there are three key drivers that could sustain the company’s current momentum, including the persisting rapid pace of enterprise customer acquisition, new product launches that increase upsell and initial deal sizes, as well as capitalizing on partner ecosystems for implementation and go-to-market activities.

Zlotsky expects Coupa Software’s “highly profitable and sticky recurring revenue base to generate strong FCF over time.”

The company announced the hiring of its first vice president of sales for the Asia Pacific region on October 10 in a press release on Business Wire.

At last check, Coupa was down 1.78 percent at $24.87 early in Monday's session.