Coupa Software Market Capitulates After Weak Guidance
Coupa Software (NASDAQ: COUP) is a cloud-based SaaS company offering business-spend services worldwide. The company’s services got a boost from the pandemic and have been in high demand but one thing is clear from the results. The tailwinds put in place by the pandemic have run their course and growth is slowing from its peak. In that light, the 122X valuation seems a little steep and a factor that may weigh on share prices as the year progresses but we think the downtrend is over. Price action in the wake of the Q4 results and F23 guidance looks like a capitulation in the market that could put a bottom in the price action. The caveat is that this bottom and reversal in action will most likely result in a trading range at or near the new lows and not a full reversal uptrend.
Blowout Quarter Priced Into Coupa Software Shares
Coupa Software had a blowout quarter in terms of absolute performance and the analyst's expectations but the guidance left a lot to be desired. The Q4 revenue of $193.3 million is up 18.2% over last year and beat by 380 basis points but the outlook for the coming year and Q1 period are much weaker than expected. The good news is that margins were expanded and delivered strong earnings but even that is not enough to offset the outlook. The adjusted EPS of $0.19 beat by $0.14 but that is where the good news ends.
The guidance is calling for Q1 and full-year revenue below the analyst's consensus and there is a chance for underperformance as well. We’re entering an uncertain time in terms of the economy, business spending on new technology may dry up if conditions don’t improve over the next few months. That said, the full-year revenue guidance is $840 million at the high end of the range compared to the $878.9 million Marketbeat.com consensus and the earnings outlook is worse. The company is calling for adjusted EPS of $0.19 at the high end versus the almost $0.75 expected by the analysts.
The Analysts Cut Their Targets On Coupa Software
The 22 analysts rating Coupa Software still think the company is ownable but their sentiment is waning fast. A full 10 of the analysts have come out with commentary in the wake of the earnings report and all 10 are bearish. Two of the 10 include double-downgrades to Neutral equivalents while 9 include price target reductions. Eight of the price target reductions have the stock trading in the range of $65 to $90 which has the stock fairly valued at its current levels. The Marketbeat.com consensus is $145, however, and implies about 100% of upside for the stock.
Oppenheimer analysts Koji Ikeda wrote, "We caution investors on getting involved in bottom fishing Coupa shares in the hopes for outsized returns because the bull case or return to 30% growth anytime soon now looks off the table, we see risk to management's medium-term mid-twenties organic growth guidance, and few near-term catalysts,”.
The Technical Outlook: Coupa Software Down 20%
Shares of Coupa Software fell more than 20% in the wake of the earnings release but might be at the bottom now. The stock is carrying a high 10% short interest and it looks like short-covering has begun. In that light, price action may bob along at these levels until a base can be formed but even then there is a risk. A break below support at the $65 level would be bearish and could send the stock down into the $30s.
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