The internet software and services industry is one of the fastest-growing in the technology sector. This is partly due to the rapid growth of the cloud computing market, which is driven by a growing demand for cloud-based services. This growth is opening endless opportunities for companies that provide specialized software and services.
Therefore, global multinationals like Salesforce.com Inc. (NYSE:CRM), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) and Microsoft Corp. (NASDAQ:MSFT) will be among those that could benefit significantly in the coming years.
But in order to fully capitalize on the rapid growth of the internet software and service market, focusing on less diversified stocks could be the key. Companies selling specialized products like Coupa Software Inc. (NASDAQ:COUP), which reported earnings last week, provide investors with a unique opportunity.
Coupa Software is a growth company that is focusing on global expansion to capitalize on the growing demand for cloud-based software and services. The company has already started to realize the benefits of its global expansion, as pointed out by the CEO in its second-quarter earnings report on Sept. 3.
According to CEO Rob Bernshteyn, Coupa is now a global company with 25% of its revenue coming from Europe in the most recent quarter. Bernshteyn told TheStreet that the company now has offices across the globe ready to provide services to its growing portfolio of customers.
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The company provides a spend management platform that helps organizations to connect with suppliers globally. This helps them to display a clear flow and control of how they spend money. The cost efficiencies derived from this system can help companies save money and boost their bottom lines.
Coupa markets its cloud platform to a range of industries, including companies operating in the health care, financial services, technology and retail sectors, among others. Some of the industries mentioned are experiencing rapid growth due to advances in technology, which will play a key role in the company's growth.
Small businesses are embracing modern methods of payment, including online payment and mobile applications. Online lending and asset financing services are also in demand. Therefore, Coupa's cloud platform will become more popular in the coming years as online financial platforms use it to gain direct insight on how efficient their customers are at generating cash flows while simultaneously keeping a clear record of the repayment schedule.
Most recent quarter highlights
In the second quarter, Coupa reported a 54% increase in revenue to $95.1 million, which topped analysts' expectations by nearly $10 million.
Subscription revenues, the company's main source of income, registered 51% growth, driven by a 57% increase in quarterly billings, which topped $107 million.
Coupa's non-GAAP earnings topped analyst expectations of a loss of 25 cents per share by 7 cents. This also reflected a 40% growth from the prior-year quarter.
The company now expects to post earnings of 5 cents to 8 cents per share on $95.5 million to $96.5 million in revenue in the third quarter.
Management also raised its earnings guidance for fiscal 2020 from a range of 7 cents to 10 cents per share to between 11 cents and 16 cents. The company's annual revenue is now expected to be between $369 million and $372 million, up from the initial guidance of $342 million to $344 million.
Coupa's top line is expected to continue to experience steady growth through 2022, but the bottom line will continue to be shaky as the company continues to implement its strategy for global expansion and integration into new markets.
From a valuation perspective, the company's stock appears to expensive given the high price-sales ratio of 24.93. The price-earnings to growth ratio of 17 (five-year expected) is relatively impressive given that its trailing 12-month earnings currently stand at -$1.11 per share. Ideally, it means that in the next five years, Coupa is expected to break even and post earnings per share of $8. As a result of this potential earnings growth, shareholders remain optimistic about the stock.
Disclosure: No position in the stocks mentioned.
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This article first appeared on GuruFocus.
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