Coupa IPO Overview

It's been a good year so far for enterprise technology IPOs. We've enjoyed Twilio (TWLO) and most recently Nutanix (NTNX) which priced high, opened higher and went on to impressive gains in the aftermarket.

Coupa (COUP) is scheduled for a Wednesday night pricing and should be trading Thursday morning. The current proposed range is $14-16. 

Expense management (which is what Coupa does) is a little less sexy than some other areas. But in terms of predictable ROI executives at companies love it. Lots of spending (in many cases the majority) at companies is "off contract" which basically means unsupervised, not optimized and hard to predict. This is spending "outside the system" as employees might call it.

Coupa provides a platform to manage procurement and spending in an enterprise that makes it easy for employees to use which dramatically improves "compliance" with corporate spending polices. It also lowers costs and allows much greater knowledge and control over expenses.

This isn't a new area, Concur was the market leader in this space before SAP acquired them in 2014 for over $8B.Concur was on track to do about $700M in revenues the year SAP bought them.

That will leave COUP as the only "pure play" in this area. Most of the large enterprise software companies - SAP, Oracle, Workday have integrated expense management but it's not quite as good. Not bad but not great either.

There's also a "network" property emerging in the COUP platform which is similar to what SPS Commerce (SPSC) did by connecting nodes of the supply chain for companies. This is makes total sense and adds to the leverage (and lock-in) that Coupa will enjoy. In terms of positioning vis a vis Concur we'd expect COUP to gravitate to more "Salesforce-centric" businesses rather than "SAP-centric" to make customer selection much more efficient.

The final point I'll make (no reason to belabor this thing) is that unlike quite a few other companies we've looked at this year revenue growth at Coupa has actually accelerated this year - it's 76% YTD versus 64% for last year.

Coupa Risks

Other than the usual suspects - probably the biggest one is that the large vendors get aggressive and decide to give away expense management as more of a stand-alone solution. At least SAP could do this with Concur. For the others it might be hard to unbundle. But still they could get more aggressive and elongate the sales cycle for Coupa.

Coupa relies on Amazon Web Services for infrastructure. AWS is viewed as reliable but a prolonged outage for any reason could have an impact on Coupa customers and their business with them.

Coupa Valuation

A successful SaaS business generates high growth, good visibility and ultimately, high margins. As such they tend to get in-line or higher multiples.

Our quick and dirty IV is below and suggests quite a bit of upside if Coupa continues to execute. The numbers might be a little low here given how fast they are growing now. But "out of the gate" this QDIV provides plenty of runway for the stock.

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