Analyst: Coupa Didn't Have A Breakout Quarter To Justify Higher Valuation

Solid second-quarter results from Coupa Software Inc COUP failed to send the sell side into a frenzy.

While Loop Capital Markets didn't see it as a breakout quarter, which might justify a higher valuation, JMP Securities said its valuation for the company is roughly in line with the high-growth SaaS peer group median multiple.

Following the quarterly results that were reported after the close Tuesday, Loop Capital maintained a Hold and $32 price target on the company. JMP Securities maintained a Market Perform and $40 price target.

At time of writing, Coupa shares were up 2.4 percent to $30.30.

Solid Execution, Operating Leverage A Deterrent

The highlights of strong Q2 financial performance by Coupa were the strong uptake and value proposition its software is bringing to the procurement management market, Loop Capital analyst Joseph Vafi said in a note. Subscription revenue accelerated modestly to 43 percent and billings for the trailing 12 months grew 34 percent, the analyst said.

Quarterly revenues as well cash flow beat expectations, according to Loop. Though projecting that third-quarter cash flow could be negative, Vafi said the company is likely to beat its 2018 guidance for being slightly positive on operating cash flow.

Loop Capital said it is encouraged by Coupa's value proposition resonating among leading global companies with sophisticated supply chain infrastructure. The company signed contracts with Unilever plc (ADR) UL and Glencore in Q2.

"While we believe Coupa is executing very well, its higher sales and marketing spend once again did not exhibit operating leverage and in fact grew faster than revenue," the firm said. Sales and marketing as a percent of revenue on a GAAP basis rose about 300 basis points sequentially in Q2 on top of a sequential increase of 500 basis points in the first quarter, according to Loop.

Loop said it would prefer to see even modest operating leverage from Coupa at some point.

Executing Well

Coupa is "executing well" against a $7 billion addressable market opportunity for procurement, invoicing and expense management software, JMP Securities analysts Patrick Walravens and Mathew Spencer said in a note.

The analysts also see scope for an expansion in overall opportunity and enhanced win rates, given that the company is in the early stages of applying artificial intelligence and machine learning across its platforms.

With the company reporting beats on the bottom line, revenue and billings growth, and issuing above-consensus guidance for the third quarter and 2018, JMP Securities raised its 2018 non-GAAP bottom-line estimate from a loss of $0.50 per share to a loss of $0.48 per share and revenue estimate from $175 million to $178.5 million.

Additionally, the firm raised its revenues estimates for 2019 and 2020, but maintained its bottom line estimates for both years.

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