Coupa Software Incorporated (COUP) Investment Memo
Meera Equities 10.13.2020
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Investment Thesis
Large corporations will continue to leverage cloud-based software analytics to make better decisions. We are bullish on the BSM space because it quite literally saves corporations money, something we believe corporations will continue to do. Coupa is the market leader in the BSM space and has terrific customer retention numbers, growing cash flows, and a great product.
Company Description
Coupa Software is a cloud-based business spending management platform that provides companies with increased visibility and control into how they spend money including; procurement, expense management, and invoicing.
Qualitative
Overview:
Sector: Technology
Industry: Software - Application
Competitors: ORCL, CRM, SAP
Strategy: Ensure Customer Success, Focus on Results, & Strive for Excellence
Deliver quantifiable business value to customers by maximizing spend management
Rapid time-to-deployment ranging from a few weeks to several months
Easy-to-use interface that reduces complexity leading to quick adaption helping generate value within a short timeframe, thus benefiting from rapid ROI
Business Model: BSM Platform
Drive Adaption in s short time - platform applies a distinctive user-centric approach that enables widespread adaption across the entire organization and supplier base.
Capture – transactional engine comprehensively helps capture and manage spend within an organization.
Analyze – real-time analytical and prescriptive insights help improve decision making
Control – manage and streamline spending activity that increases efficiencies and result in real savings
Market: Mid-Market & Enterprise Corporations
Coupa believes that the world’s largest 5,000 companies combine for over $13T in indirect spend
Moat: Network Effects & Customer Switching Costs
Over 80% of Coupa’s sales are influenced by partners
Coupa has added 2M suppliers with minimal friction
Very strong customer retention rates – Gross renewal rates over 95%, net retention over 112%, and customer spend on the platform has increased from $458M in 2016 to $1.2B in 2020
Customers unlikely to switch for cost savings considering Coup has helped customers save more than $8B in 2016 which has grown to over $40B in 2019
X-Factor: Coupa Open Business Network
Instantly connects business & suppliers through a portal that allows suppliers to manage content and settings on a customer-by-customer basis.
Actionable notifications (easily processes converts purchase orders and invoices) and direction connection vis cXML and EDI.
Companies become compliant with government mandates, increase profitability, reduce costs, and drive electronic transactions.
Cash Cow: Subscription Services
$345M out of $390M total revenue (88%)
Using our platform, businesses are able to achieve real, measurable value and savings that drive their profitability; we call this “Value as a Service.”
Comprehensive cloud-based BSM platform that is tightly integrated with broad capabilities that would otherwise require multiple applications
Growth Opportunities:
Expand international operations and develop a worldwide customer base.
Continue to establish strategic relationships with 3rd parties, implementation partners, system integrator partners, and technology providers.
Quantitative
Risks
Coupa has spent over $500M on acquisitions since 2017, management will be expected to seamlessly integrate these acquisitions and increase shareholder value.
Coupa will likely see increased competition from established companies with large enterprise customer bases.
Coupa’s platform is sold to large enterprises and inherently encounters long and unpredictable sales cycles.
Learn Something
Company Materials: 10-K | Annual Meeting Presentation | Investor Relations
Coupa: Welcome to the Era of BSM - Business Spend Management
Purchase Control: What is Business Spend Management?
Cyclical Stock: Stock that's price is affected by macroeconomic or systematic changes in the overall economy.
