Coupa Software's Valuation Is 'Extremely Full'

Among the financially-oriented SaaS companies, Coupa Software Inc COUP offers “the most rapid and compelling” customer ROI [return on investment], Loop Capital’s Joseph Vafi said in a report. He added that the company also offers a multi-tenant cloud architecture that helps penetrate the greenfield middle market “efficiently, and theoretically, quite rapidly.”

Vafi mentioned, however, that Coupa’s overall valuation appeared “very full,” in view of its “immature P&L” [profit and loss statement] and lower gross margin expansion versus other high-growth SaaS peers. He initiated coverage of the company with a Hold rating and a price target of $27.

Spend Management Software

The spend management software category, or eProcurement, is estimated at $5 billion in annual software and related services.

“Coupa is a Gartner Magic Quadrant leader in the Procure to Pay category,” along with market share leader SAP Ariba, Vafi commented.

Related Link: SAP Ariba Recognized as a Leader by Top Tier Research Firms

Coupa’s spend management platform enables customers to access the company’s supplier network of more than 2 million. There are modules in addition to the core offering, which allows the company to upsell later, providing an opportunity to increase revenue per customer.

Management estimated the use of the software allowed customers to record almost $3 billion in procurement-related savings in F2016, versus $100 million paid to Coupa, “translating into an almost astounding ROI,” the analyst stated.

Coupa’s client retention is at ~105 percent, recurring revenue growth at 50 percent in F2016 and software gross margin at 78 percent.

Cloud Prospects

“Coupa’s real franchise value may exist in the middle market,” Vafi pointed out. The company currently has a customer base of about 460 companies, compared to the overall market of more than 187,000 companies with at least 500 employees.