Sell-Side Largely Bullish On Coupa Software After Q3 Beat-And-Raise

Coupa Software Inc COUP unexpectedly swung to a profit in the third quarter on the basis of 42-percent revenue growth. The company issued upbeat Q4 guidance and raised its full-year outlook. 

The Analysts

• Raymond James analyst Brian Peterson reiterated an Outperform rating on Coupa with an $86 price target. 
• Oppenheimer analyst Koji Ikeda reiterated an Outperform rating and lowered the price target from $90 to $80. 
• Cantor Fitzgerald analyst Joseph Foresi maintained an Outperform rating and $92 price target.
• Morgan Stanley analyst Stan Zlotsky maintained an Equal-weight rating and $70 price target.

Raymond James

Coupa's revenue outperformance was driven by 41.5-percent subscription revenue growth, with calculated billings jumping 39.5 percent, Raymond James' Peterson said in a Tuesday note.

Cumulative spend under management, another key metric, was at over $940 billion, a $100-billion sequential increase. At 11.2 percent, the net retention rate remained at the upper end of the long-term range, the analyst said. 

Raymond James said it believes the company's compelling ROI proposition, expanding product offering and strategic partner ecosystem suggest revenue per customer should be materially higher than the current low six-figure range.

"While the case for multiple expansion looks increasingly more challenging, we still see upside for shares as the company looks increasingly likely to deliver on its medium- and long-term objectives, including what we believe to be an even more achievable $1-billion revenue target." 

Oppenheimer

Sales execution remained strong, with 30-percent-plus growth trends across subscription revenue, total revenue, subscription billings, total billings, deferred revenue and spend under management, said Oppenheimer's Ikeda.

Coupa expects positive operating profit inflection to come this year ahead of schedule, the analyst said. 

"We believe the Q3 results lend support to our thesis that the business is positioned to disrupt a large spend management TAM while delivering sustainable 30-percent subscriptions revenue growth and operating leverage, with potential catalysts ahead (payments)." 

Cantor

Coupa is rapidly growing revenue and has visibility to profitability over the medium term, Cantor Fitzgerald's Foresi said in a note. The analyst expects cumulative spend under management to reach $1 trillion next quarter.

While noting that Coupa's adjusted operating margins were positive for the fourth quarter in a row, the analyst said he expects gross margins to be dented for the next couple of quarters due to recent acquisitions.

Cantor raised its estimates for both fiscal 2019 and 2020. 

"We believe the high multiple is justified due to rapid revenue growth and a visible path to profitability." 

Morgan Stanley

Steady outperformance has been Coupa's mainstay, with more set to follow, Morgan Stanley's Zlotsky said in a note.

The Q3 billings beat positions the company for high-30 percent revenue growth this year, the analyst said. 

Morgan Stanley is staying on the sidelines, as the "beat/raise expectations are largely priced in," Zlotsky said. 

Morgan Stanley did not rule out the possibility of the shares hitting its $116 bull case if Coupa manages to sustain more than 30-percent growth momentum.

The Price Action

Coupa shares have more than doubled year-to-date. The stock was sliding 8.33 percent to $63.07 at the time of publication Tuesday. 

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