COUP's success and strong performance is attributable to a combination of new customer wins due to its effective go-to-market approach, new product launches, acquisitions, and solid cost management. On top of that, the total addressable market for the company is expansive with it estimating that only 20-30% of corporate spending being managed through an IT platform. So, even today, a vast majority of businesses are using outdated methods for spending management, such as paper, fax, email, and phone calls.
For those unfamiliar with the company, COUP is a cloud-based provider of business spend management (BSM) software. Its' platform consists of procurement, invoicing, and expense management modules that form the transactional engine and capture different aspects of a company's spend. In short, the company’s platform helps clients to monitor many different forms of corporate expenditure, from supply procurement to inventory balancing to travel charges, providing capabilities suited to different types of expenses and payments.
Circling back to tonight's earnings report, when the company reported Q2 results on September 4, it also issued Q3 guidance of ($0.04)-($0.01) vs. the previous ($0.05) consensus, and revenue of $62-$63 mln compared to the prior $58.5 mln expectation. After its upside guidance, those estimates got ramped up to EPS of ($0.03) and revenue of $62.6 mln, representing year/year growth of 32%.
If the company is to extend its winning streak tonight, it will likely be due to its continued success in its go-to-market sales approach as it looks to branch out from its core procurement product. Last quarter, it added 17 new customers, which subscribed to its newer Risk Aware product. To put this into further perspective, during the earnings call last quarter, management commented that more than 50% of its subscription revenue is now coming from products other than its procure model. Simultaneously, average deal sizes have also been increasing.
While COUP has been adding new customers at a fast clip, it has been bolstering that growth with tack-on acquisitions. For instance, on September 4, it acquired the technology assets of DCR Workforce, a SaaS application provider for contingent workforce and services procurement management. Then, on October 15, it announced the acquisition of Aquiire, which is a provider of real-time supplier catalog functions. Without real-time search capability, employees often waste time and productivity navigating catalogs across many different supplier websites to find the products they need. Many suppliers still use catalogs for parts or products they sell to other businesses, and they are still prevalent among companies purchasing from another company. Given that prevalence, the acquisition boosts the capabilities of the Coupa BSM Platform.
Lastly, COUP has done a good job managing costs, which is especially encouraging given its healthy double-digit revenue growth. Last quarter, Sales & Marketing expense only increased by 12% yr/yr. As a percentage of revenue, it slid to 43.1% from 53.4% in the year ago period. That indicates that its existing customers are finding considerable value using its platform, and are willing to up its spending with the company.
To wrap up, heading into tonight's print, the stock has been surging, up 20% since mid-November. COUP's consistent upside performance, strong growth rates, and its proximity to becoming profitable, it has become a premier growth stock. Should the company continue its winning streak, the stock could be poised to make a run towards all-time highs, so long as market conditions in general remain favorable.