Coupa IPO Pops on Opening: What Do We Think?

Coupa (NASDAQ: COUP), which priced last night at the higher end of its revised range ($18), nearly doubled this morning, after it started trading. As of publishing around noon CDT today, it has dropped slightly — up 85%+ since market open — but it is still above $30 per share.

The current stock price gives Coupa a valuation within striking distance of $2B, which would equate to above 10x revenue on a forward basis or over 15x on a trailing basis.

Moreover, the stock price jump likely makes most if not all of the investors “whole” given preferences and other stipulations typical of later-stage funding rounds — although the nuances here can be complicated.

More importantly, here’s my quick take on the implications for the sector of the IPO and the valuation (opinions are mine and do not necessarily reflect those of my colleagues at Azul Partners or Spend Matters):

  • With the IPO complete, Coupa (finally) has a war chest for acquisitions to fill some gaps that are holding it back today. Look for some smart moves in the area over the next 12 months — and perhaps sooner. We explore some of these gaps in this recent Spend Matters PRO analysis of Coupa as well as explain the cloud provider’s overall strengths, footprint, opportunities, competitive landscape, etc.
  • The valuation is likely to provide further fuel for other IPO filings this year and perhaps may contribute to helping end the tech public offering drought.
  • We’re excited about what the IPO means for procurement overall. Our “five reasons” why a Coupa IPO is beneficial for the sector have not changed.
  • The valuation of other high growth, specialized and/or differentiated companies in the procurement technology sector was just validated; however others will continue to believe they are worth more than they are (some of the valuations in the books being shopped have surprised me in recent months and quarters). There are some significant nuances to valuation beyond cloud/SaaS and growth rates in this sector and some folks (or their bankers) have on rosy colored glasses.
  • The majority of sub-sectors within the procurement technology space continue to grow at a healthy, double-digit CAGR based on our market sizing efforts — procure-to-pay is just one of them. Perhaps Coupa’s IPO will cause greater interest in companies targeted related areas such as sourcing, eProcurement, e-invoicing/networks, supplier management, contract lifecycle management, supplier management, market intelligence, commodity management, payables/receivables financing, payments, etc.
  • Supplier networks and new connectivity models (beyond EDI) are in their infancy. We recently updated our sizing of the markets for networks and B2B in multiple dimensions (bottoms up and top down) and it’s clear we’re still just in the first inning of potential based on current penetration. How Coupa (and others) tap the potential of networked business models will be fascinating to watch.
  • The IPO validates the move by Accel-KKR to take SciQuest private and to transform the organization (as its recent management moves confirm). It also provides validation for Basware, who some believe overpaid for Verian (a niche eProcurement/P2P vendor), as the valuation was driven up in that transaction over what some expected; and of course it validates SAP’s move to buy Ariba years ago (but the proof of that transaction needs no further validation for those close to it).
  • Most investors (at all stages) still do not understand procurement technology or the vendor landscape – and they will readily admit this. But let us hope that the value Coupa has generated for customers and shareholders alike causes the investment community to want to double-click on all the areas of source-to-pay, procure-to-pay and related finance and supply chain technologies and solutions.

Finally, let us remember that Coupa’s success will not make it any easier for any technology or solutions company to sell these types of solutions into procurement, finance and supply chain organizations.

Users (and buyers) of these tools are some of the toughest customers in the world. I sometimes describe selling anything into procurement as trying to sell a used car to an expert used car dealer (or a baseball ticket to a seasoned scalper on Addison Street outside of Wrigley Field). These are (typically) tough customers who do their homework from start to finish.

Granted, as Coupa told investors on its roadshow, it is not just selling into procurement anymore -- which is an entirely different topic to explore. And one that shows in the coming years that finance organizations may ultimately take a greater role in buying and owning spend control, compliance and P2P systems.

These views do not necessarily represent those of Azul Partners, Inc. or Spend Matters. Jason can be reached at jbusch (at) spendmatters (dot) com.

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