Coupa is an interesting company to me. They operate in the BSM (Business service management) space which is huge. BSM is basically controlling a companies spend. Invoices, payments, sourcing, etc. I have been intrigued by the accelerating growth that you can see in the chart below. When I looked closer though I realized that coupla has made 11 acquisitions since 2017 probably responsible for around 100 million a year worth of revenue.
5 of those acquisitions are since q2 2019. (Note, dates and quarters don’t line up with coupa)
- DCR workforce sept 4 2018 approximately 27.5 annual rev
- Aquiire oct 15 2018 apprximately 13 million annual rev
- Hiperos dec 10 2018 approximately 24 million annual rev
- Exari may 7 2019 approximately 13 million annual rev
- Yapta jan 7 2020 approximately 13 million annual rev
Rev % growth approximate acquisition rev % organic growth Q3 2019 67.4 42.5 *6(dcr)+1(hiperos) 27 Q4 2019 74.9 39.4 *6(dcr)+6(hiperos)+3(Aqui) 12 Q1 2020 81.4 44.4 *6(dcr)+6(hiperos)+3(Aqui) 17 Q2 2020 95.1 54.3 *6(dcr)+6(hiperos)+3(A)+1.9(exari) 27 Q3 2020 101.8 50.9 3.7(exari)+6(hiperos) +3(A) 32
First off, this analysis is deeply and fundamentally flawed for a number of reasons.
I only have approximate revenue numbers scraped from the internet for the acquisitions.
I don’t know when revenue was recognized. I can only guess
I don’t know how the companies were integrated so even though my guess for revenue for DCR is 27.5 million the way they were integrated might mean that first year they only got 15 million of revenue.
Another way of looking at this is to take the TTM revenue and back out the approximate revenue contributed by acquisitions to get organic growth. That gives us somewhere around 25% organic growth.
Ultimately all this is just spitballing but I do think it provides some interesting data about how Coupa operates and what to expect in the future. .
Coupa has been very successful in acquiring companies and integrating them into their platform. As per saul’s post here https://discussion.fool.com/hi-muji-you-say-that-coupa-is-on-you… . They are showing improving cash flow, operating leverage and earnings. Hard to argue with all that.
(copy and pasted)
Subscription Revenue was up 49%, and was 88% of revenue.
Calculated billings were up 54%.
Now we get to the GOOD stuff:
Operating Income was $11.6 million. (By comparison the previous 7 quarters were 0.9, 0.3, 4.0, 5.8, 2.4, 2.2, and 4.8. Making $11.6 looks like they are breaking out).
Adjusted Net Income was $14.2 million. (By comparison the previous 7 quarters were 1.4, (0.1), 3.3, 5.5, 3.4, 2.1, and 5.3. Making $14.2 also looks like they are breaking out).
EPS was 20 cents. The previous high ever was 8 cents.
And honestly, what better company to be a serial acquirer than a BSM company. They should be experts at integrating the backend and see significant cost savings which is why i think we see such good operational results.
I used to invest in another company that used many small acquisitions to grow called Middleby. They were masters at it until they took over Vicking which was a really big bite. They then had all sorts of problems integrating the companies, manufacturing problems etc. I bring this up because the tendency that I have seen is for these companies to make bigger and bigger acquisitions to keep up the growth.
Even though I really like to see the revenue growth increase I think we especially need to keep an eye on cash flow and debt for a company like Coupa which so far look good. Cash flow is improving. Debt is increasing but assets - debt is staying relatively even at around 300 million
Finally, do i think Coupa is a good investment? That is a hard one. I’m not as excited about it as I was before I looked into it a little more deeply. Comparisons after next quarter won’t have their larger recent acquisitions in the comparison so unless Coupa makes some bigger acquisitions growth is going to appear to slow down. I think Coupa’s CAP and TAM are quite large which part of the reason why I think they are so highly valued. I was a little disappointed that coupa makes it so hard to figure out organic growth vs inorganic growth and since seeking alpha is starting to charge money for any CC transcripts more than a couple of quarters old I don’t have old CCs to help me. My guess is organic growth is somewhere around 20-30%, probably closer to 20%. Not bad, but not great unless they can keep finding companies to add into the fold.
Also, Does anyone have customer counts going back a couple of years?