COUPA SOFTWARE
COUPA SOFTWARE – CATALYZING DIGITIZATION OF BUSINESS SPEND MANAGEMENT?
COUPA software is a cloud based Business Spend Management platform that provides companies visibility and control over how they spend money on Indirect spend – spend very difficult to manage due to insufficient spending behavior, disparate systems that obstruct spend visibility, and manual process flows. With trends such as increasing Cloud adoption, increasing spend compliance requirements, and increasing appetite to optimize ‘Business Spend’, enterprises are increasingly looking for robust platforms / solutions to a) digitize, and automate various categories of Indirect spend b) connect and integrate spend across multiple ERP providers. Can Coupa, strongly recognized by Gartner and customers for product innovation, capitalize on these broad industry trends, and CATALYZE its product adoption and become the enterprise tool of choice for Business Spend Management?
Product offering and Growth Strategy
Coupa offers several product offerings:
- Core platform: Consists of procurement, invoicing, and expense management modules that form its transactional engine and capture a company’s spend
- Supporting modules: Help companies further manage spend, including strategic sourcing, spend analysis, contract management, supplier management, and inventory management
- Coupa Advantage: A program that leverages collective bargaining power of Coupa customers, and provide benchmarking, and insights to customers
- Coupa Open Business Network: Suppliers of all sizes can easily interact with buyers electronically, thus significantly reduce paper work, improving operating efficiencies, and reducing costs
- Coupa Pay: Coupa Pay is a logical extension of Coupa’s other offerings. Coupa Pay will act as payments facilitator between buyers and sellers. Still in ‘exploratory’ and ‘product market fit’ phases (tentative phased approach of enabling payment types such as virtual cards, and in certain market segments).
Some applications / use cases of its platform (excerpts from Coupa’s Value as a Service published booklet):
- Ahold: Coupa helped bring Ahold from a six-platform system to a single, easy-to-use, intuitive spend management system. The efficiency gained has improved many of Ahold’s requisition and business processes. Ahold saved $36 million.
- Staples: Coupa will give us visibility to our global $3 billion of spend, who’s spending it, and with which suppliers. Plus, it will give us the demand control over that spend and allow us to deal, in particular, with the tail spend. Without a procure-to-pay system like Coupa, you can semi-manually get your arms around the major 50, 100, 200 suppliers. What’s hard to get your arms around is the 10,000 suppliers that are out there with spends that are very small.
- Salesforce: Salesforce needed a user-friendly, intuitive PO and requisition process that was able to scale. With Coupa, the cloud computing company has been able to meet these needs and continue to grow. 80%OF TOTAL ADJUSTABLE SPEND WITH COUPA
- Allegheny Health Network: “For a hospital, there is no down time.” Jennifer Garvin reveals new levels of efficiency and intelligence enabled by Coupa — and the impact that can have on patient care. 100% PAPERLESS
A few elements of product growth strategy:
- Maintain a strong Core platform and ensure that customers adapt Coupa as an enterprise wide Business Spend Management platform
- Ensure platform has breadth and depth of integrations with “system of record” providers
- Ensure ease of use of its platform
- Understand customer pain points,
and extend use cases of its platform
- Similar to its supporting module line of products, Coupa Advantage, and Coupa Open Business Network
- Explore market fit and expand use cases of Coupa Pay (B2B payments is a very challenging market segment to penetrate, and get ‘right’; Coupa Pay, being a logical extension of spend management process flow, can contribute to Coupa’s product differentiation vs. competitors, and customer stickiness)
A few elements of revenue growth strategy:
- Capture more Cumulative Spend Under Management onto Coupa’s platform
- Work with existing customers on a Multi-product adoption journey (Coupa’s internal estimates suggest an additional revenue potential of $ 0.6 billion from its current 900+ customers)
- Focus on penetrating new customers
- Large market opportunity of $56B (Coupa’s internal estimate of total addressable market size) with $31B from enterprise accounts, and $25B from mid-market accounts
- Target markets: less than 10% of Global 2000 enterprises are current customers; ~24,000 enterprise accounts; ~81,000 mid-market accounts; EMEA country clusters; Emerging Markets
- Federal vertical
- Nurture partner ecosystem of SI’s, implementation partners, resellers, and technology partners
- Become the enterprise tool of business spend management automation (engage ‘C-suite’ type salesforce, shared account strategies with big system integrators)
Competition
Coupa faces competition from
- point solution providers of specific categories of INDIRECT spending
- Legacy ERP vendors such as SAP that have acquired and integrated INDIRECT spending solution providers such as Ariba, and Concur and offered logical extensions to their traditional ERP suites.
Coupa is trying to redefine Business Spend Management by offering a comprehensive set of spend management products: Core, Support Modules, Coupa Advantage, Coupe Open Network, and Coupa Pay. Coupa has been recognized by Gartner as an industry leader for its visionary approach to solve customer pain points, ease of platform use, and ease of implementation. Coupa is also trying to ramp up its partner ecosystem of SI’s, implementation partners, resellers, and technology partners (Accenture, Deloitte, KPMG, and PwC).
But with trends such as increasing Cloud adoption, increasing compliance requirements, and increasing appetite for customers to optimize ‘Business Spend’, enterprises are increasingly looking for robust platforms / solutions to a) digitize, and automate spend b) connect and integrate spend across multiple ERP providers. Coupa will have enough “sales leads” to play to its strengths (in competitive advantage section) that Competition does not play a significant role at least for the next few years.
Coupa’s competitive advantage
Coupa is recognized by Gartner and customers for the following strengths
- Product innovation (core, supporting modules, optimization and AI enabled modules, community network etc.,)
- Platform ease of use (user centric, mobile friendly, consumer internet like experience)
- Platform ease of implementation (2-4 months for a medium enterprise to ~8 months for a large enterprise)
Coupa is working on enhancing its relative weaknesses (vs. its competition)
- Depth and Breadth of integrations with various ‘system of record’ vendors (SAP, Oracle, Workday, NetSuite etc.,)
- Ramp up its partner ecosystem of SI’s, implementation partners, resellers, and technology partners (Accenture, Deloitte, KPMG, and PwC)
Coupa is also strongly committed to increasing Supplier network (zero cost, supplier ‘support’ through dynamic discounting, financing solutions etc.,) and providing Community Intelligence (insights from an aggregate buyer – supplier community) to benefit of individual members.
By leveraging its strengths, addressing its weaknesses, ‘supporting’ suppliers and providing community intelligence, Coupa is very likely to accelerate platform adaption (increasing cumulative spend under management – see Indicators section) even further and create its strongest competitive advantage yet — NETWORK effect.
Management pedigree
Robert Bernshteyn – Current CEO. Rob’s career path has some of traditional generalist CEO path milestones of MBA from HBS, and management consulting at McKinsey. But Rob also has relevant product and marketing management experience at Siebel ERM, and systems implementation experience at SAP. Scaling up Success Factors from a start up to a public company should also help Rob in growing Coupa to greater heights.
March 2019 analyst day presentations reveal a camaraderie among executive management, and a thoughtful collaboration among various business functions especially between marketing and sales. Ravi Thakur currently leading Coupa Pay has been with the company since early on, and has successfully led customer success, and product management arenas. Ravi seems to have a very thoughtful Coupa Pay vision and it will be interesting to see how Coupa Pay pans out. Another noteworthy mention is Todd Ford’s (CFO) focus on fiscal prudence targeting growth yet focused on margins, and cash flows unlike a typical cloud company.
Key Financial Highlights
Earnings ($mil):
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Revenue | 51 | 84 | 134 | 187 | 260 |
| Gross Profit | 32 | 52 | 88 | 127 | 177 |
| Operating Expenses: R&D | 12 | 23 | 30 | 45 | 62 |
| Operating Expenses: SG&A | 47 | 74 | 93 | 127 | 163 |
| Operating Income | -27 | -45 | -35 | -45 | -47 |
| Net Income | -27 | -46 | -38 | -44 | -56 |
| EPS | -1.88 | -0.83 | -0.96 |
Balance Sheet ($mil):
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Cash & Cash Equivalents | 42 | 92 | 202 | 413 | 141 |
| Short term investments | 180 | ||||
| Total Assets | 70 | 140 | 284 | 572 | 740 |
| Deferred Revenue | 39 | 64 | 90 | 126 | 180 |
| Long term debt & obligations | 89 | 166 | 0 | 179 | 22 |
| Additional Paid–in capital | 4 | 17 | 334 | 445 | 568 |
| Retained earnings | -77 | -123 | -160 | -204 | -255 |
| Total Shareholder equity | -73 | -106 | 174 | 241 | 313 |
Cash Flows ($mil):
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Operating | -12 | -22 | -21 | 20 | 37 |
| Investing | -2 | -5 | -11 | -51 | -330 |
| Financing | 40 | 78 | 142 | 242 | 21 |
| Free Cash Flow | -14 | -26 | -25 | 15 | 30 |
Customer profiles and key metrics:
Valuation:
Coupa is trading at multiples in-line with other high growth players such as Zscaler, and Okta. Coupa’s valuation is certainly not cheap but certainly worth taking a position (and adding more in case of a correction) depending on one’s risk appetite.
Risks of Investment:
Short to Medium term:
- Competition. Some customers may prefer to maintain their current relationships and products offered by larger players especially SAP that offer BSM products as stand-alone or bundle at lower price points.
- Execution. Coupa seems to have a strategic vision to provide a comprehensive (C), open (O), user-centric (U), prescriptive (P), and accelerated (A) platform. It also seems to be exhibiting financial prudence focused on cash flows, and margins balancing growth and investments. Risk is Coupa could stray from its business and financial strategy.
Long term: Some new company and new technology could make Coupa irrelevant in the next business cycle akin to internet, and cloud.