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The global outbreak of the pandemic made enterprises realize the importance of cloud-based software in today’s era. Pandemic-driven restrictions led to demand uncertainty on one hand, and supply volatility on the other. That created a need for supply chain technology for companies to help them assess alternatives and balance trade-offs to achieve desired business results.
That led to a spur in demand for several companies that offer cloud-based applications and tools, as enterprises are now more aware of the cloud’s benefits.
Coupa Software (NASDAQ: COUP) offers software products that are cloud-based systems designed to make it easy for customers to view and control their business expenditures and invoices in real-time. It offers a global technology platform for Business Spend Management (BSM).
Last year, Coupa snapped up supply chain software company LLamasoft for about $1.5 billion to enhance its product offerings as businesses were suffering from pandemic-led disruptions. Due to supply chain disruptions, companies were forced to work more rapidly to adapt to changing consumer preferences, economic conditions, and the political landscape.
Recently, Needham analyst Ryan MacDonald maintained a Buy rating and a price target of $280 (28.7% upside potential) on Coupa, following its Analyst Day.
At the Analyst Day, management highlighted its current total addressable market (TAM) of $94 billion, including Coupa Pay, worth $11 billion, and Coupa Supply Chain Design and Planning (Llamasoft), worth $8 billion. MacDonald believes that Coupa Pay includes an equal proportion of transactional and subscription fees.
According to the analyst, the company’s TAM remains significantly under-penetrated, and new customer acquisition, followed by cross-selling opportunities, remain the primary growth drivers.
Coupa Pay’s take rates and mix of total payment volume (TPV) for products were also disclosed in the event. The company anticipates recording 10% TPV of total annual spend under management by FY27. (See Coupa stock chart on TipRanks)
Overall, the analyst believes that these updated disclosures increase investors’ concerns, and signal an evolving competitive landscape for payments. He expects “payments to remain competitive over the long-term and maintaining pricing power likely a challenge regardless of ecosystem strength.”
In other news, the company announced the launch of an App Marketplace in August, and rebranded Community Intelligence to Community.AI. The analyst said that such steps provide clients with flexibility for additional solutions, and highlight the benefits of using the AI approach to manage spending.
Additionally, the long-term financial targets of Coupa were updated at the event. MacDonald views these to be in line with investors’ expectations. According to the analyst, sustained 30-35% revenue growth over the long-term and adjusted operating margins of more than 30% are expected.
The 5-star analyst said, “We do not believe anything changed fundamental with the story coming away from the Analyst Day, but we expect multiple expansion in the near-term to be challenged due to some of the financial targets outlined regarding Coupa Pay. We maintain our belief Coupa’s position within BSM as a leader is unchanged and their sales execution remains in the top tier of SaaS vendors.”
Overall, the 5-star analyst believes that strong fundamentals indicate shares are attractively at current levels.
On TipRanks, Coupa is a Moderate Buy based on 12 Buy and 6 Hold ratings. The average Coupa price target of $287.50 implies upside potential of 32.2% from the current levels. Coupa shares have decreased around 31.2% over the past year.
According to the new TipRanks’ Risk Factors tool for the company, the Coupa stock is at risk mainly from two factors: Finance and Corporate, and Ability to Sell, which contribute 45% and 21%, respectively, to the total risk for the stock. Within the Finance and Corporate risk category, COUP has 26 risks, details of which can be found on the TipRanks website.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your analysis before making any investment.