During this last week I took a 4.6% position in Coupa. You’ll remember that it had been one of the four little second-tier Saas companies that I had taken trial positions in but sold out of in March. My reason for selling was that they were all growing at 30% to 40% and had net retention rates of just 110% to 120% and I could do better elsewhere.
I had lost sight of Coupa until recently when one of the portfolio summaries that others have joined me in posting alerted me. When I sold in early March, the percentage revenue increases for the past two years had looked like this:
**2017: 44% 41% 43% 34%**
**2018: 41% 37% 38% 42%**
**2019: 39%**
**It looked very unexciting. But since then the two quarters that have reported gave a different picture:**
**2017: 44% 41% 43% 34%**
**2018: 41% 37% 38% 42%**
**2019: 39% 44% 54%**
Thus we had 44%, up from 37% yoy, and up from 39% sequentially…
Followed by 54%, up from 38% yoy, and up from 44% sequentially.
Subscription revenue was up 46% and 51%.
Adjusted Op Income for the two quarters was $2.2 million, up from $0.3 million, and $4.8 million up from $4.0 million (all positive numbers).
Adjusted Net Income for the two quarters was $2.1 million, up from a loss of $0.1 million, and $5.3 million up from $3.3 million (last two quarters again were positive numbers).
Adjusted TTM EPS was positive 23 cents
Calculated Billings were up 50% and 57% for the two quarters.
This was a different picture than the one I had been looking at.
For a little background on the company, here’s a little excerpt from one of Bert’s multi-page write-ups, this one from January, and paraphrased and shortened by me. Bolding is mine.
Coupa is a leader in the e-procurement space.
It has continued to exceed its targets for growth, earnings, and free cash flow.
It has built a substantial competitive moat that may not be fully appreciated.
It has grown its TAM prodigiously by expanding into ancillary spaces that enhance the value of e-procurement.
At this point, it seems destined to become the absolute leader in its space, and to achieve the kind of profitability that leaders often deliver in the enterprise software world.
Coupa’s evolution - a story of growth and competitive success
It has been more than 2 years since I took a serious look at Coupa. I looked at it just after its IPO, concluded it was expensive, that I couldn’t see its differentiators, and was worried about the falling trend in percent revenue growth and in bookings. However, in the last year, the shares have doubled, so I thought it’s reasonable to revisit it, and see what has changed, and if there is anything unique or enticing for investors to consider.
I discovered that it has acquired a bunch of companies and now offers a set of solutions which greatly enhance its offering beyond just e-procurement. It now goes far beyond traditional e-procurement functionality, and that explains why, in part, its growth percentage has remained at elevated levels and how it has managed to jump over industry pioneer Ariba (now a part of SAP), in terms of how industry consultants view its positioning.
Over the past couple of years, Coupa has augmented its potential growth and has built a rather substantial competitive moat. Both of these are major factors in my current belief that Coupa, despite what appears to be its generous valuation, is an investment that is likely to produce above-average returns over an extended period.
I confess to being somewhat surprised as to just how well it has built a suite of integrated solutions - all of them related to e-procurement, but I have to credit this successful strategy to the CEO, Rob Bernshteyn.
Should you buy the shares? They have doubled over the past year, and the EV/S ratio is quite high (greater than 10X forward). And the estimates are for slowing growth. I think the estimates are likely to prove quite wrong, and I expect Coupa to continue to sustain hyper-growth both this calendar year and on into the future. It has a well-demarcated path to profitability. It has built a substantial competitive moat. The shares will not be immune to any market downturn. While that kind of contraction seems unlikely, anyone investing in Coupa needs to be prepared for a bumpy ride. But I think investing in Coupa makes sense for technology investors.
Saul again: The price has doubled again since Bert wrote that.
At any rate, as I said, I took a 4.6% position.
Saul
A link to the Knowledgebase for this board is at the top of the Announcements panel that is on the right side of every page on this board.
For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially “How I Pick a Company to Invest In,” and “Why My Investing Criteria Have Changed,” and “Why It Really is Different.”