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Coupa Software's Exciting Growth Story Continues

Shares of Coupa Software Inc. (NASDAQ:COUP) were down Tuesday morning after it posted third-quarter earnings on Monday evening. The business spend management software provider's stock dipped more than 6% before recovering later in the afternoon to settle at around $146 per share, 1.76% off yesterday's pre-earnings close.

The stock's decline was unexpected given the company beat analysts' expectations for both revenue and earnings. Shares of Coupa Software are now up 134% year to date. Over the same period, the S&P 500 Index has gained about 25%.


The company has invested heavily in global expansion over the last several years. The strategy appears to be paying off as the latest quarterly results indicate growth could continue for the foreseeable future.

Highlights for the most recent quarter

Coupa Software posted earnings of 20 cents per share for the third quarter, topping the consensus estimate of 7 cents. This represented a 150% increase from 8 cents in the year-ago quarter.

Revenue of $101.78 million outperformed analyst estimates by 5.47% after growing from $67.46 million last year. The company continues to witness consistent growth in subscription revenue (up 49% in the October quarter to $90.2 million), which accounts for more than 88.6% of the overall top line. On the other hand, professional services and other revenue, which account for about 11.4%, soared 68% to $11.6 million.

Coupa Software attributed the improvement in the top line to the rapid adoption of its business spend management offerings. During the earnings conference call, management also noted it has now topped the $1.5 trillion mark in cumulative spend under management.

Growth looks promising

Looking forward, Coupa Software's global expansion appears to be taking shape as it continues to add more brands to its growing portfolio of partnerships. During the third quarter, the company added Cloudflare (NYSE:NET), Maersk Drilling, Deloitte Services, SambaNova Systems and Affinity Education (ASX:AFJ), among others, to its portfolio. More companies continue to integrate Coupa BSM to their cost management processes, which will only boost the company's growth prospects.

Coupa Pay, a product that provides businesses with an end-to-end procedure-to-pay process, is also gaining traction with the likes of Citibank (NYSE:C), Transfermate, Stripe and PayPal Inc. (NASDAQ:PYPL) partnering with the company to facilitate seamless domestic and cross-border business-to-business payments.

On Tuesday, the company also announced it has been selected by German automaker BMW (XTER:BMW) to digitally transform its spend management system using Coupa BSM. According to the report, "Coupa will deploy its BSM platform globally across BMW Group to help harmonize and optimize the automaker's purchasing processes and increase efficiency and effectiveness across all products."

This shows how quickly Coupa's BSM is gaining the attention of some of the world's biggest brands. The company will gain useful marketing synergies from teaming up with globally recognized brands.

Valuation

From a valuation perspective, shares of Coupa are up 134% this year, which compares strongly to the average industry gain of just under 20%, according to Zacks. This massive rally has made the company's stock appear relatively expensive compared to its peers.

Coupa trades at a forward price-earnings ratio of about 394.61, which could be deemed too pricey when compared to Intuit Inc.'s (NASDAQ:INTU) multiple of 29.70 and SAP SE's (NYSE:SAP) ratio of 22.41. This indicates the company's expected growth may already be priced into the stock, which is also part of the reason why the consensus analyst recommendation is a hold rating.

Nonetheless, as Coupa continues to turn more profits in the coming quarters, the valuation multiples might become more appealing to long-term investors.

Disclosure: I have no positions in the stocks mentioned.

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This article first appeared on GuruFocus.