Coupa had a rough ride on Wall Street yesterday, its stock seemingly punished on the back of perfectly reasonable market outlook that didn’t sit with the more unreasonable expectations of some investors.
In fact, the Business Spend Management champion posted solid Q4 and full year 2022 numbers. For Q4, the company posted $193 million in revenue, up 18% year-on-year, with a GAAP loss of $96.0 million. Subscription revenues were $173.0 million, an increase of 28%. For the full year, revenue hit a record high of $725.3 million, up 34% year-on-year, with a GAAP loss of $379.0 million. Subscription revenues were $634.0 million, an increase of 35% from the previous year.
But it was forward guidance that Wall Street reacted badly to, with the firm predicting fiscal 2023 revenue of $836 million to $840 million. For his part, Coupa CEO Rob Bernshteyn pitched the positives:
We feel like we have a really strong core business, particularly as it pertains to subscriptions themselves. We see more and more customers adding on subscriptions at higher price points around the world. So we feel really good about that. When we look at pipeline, we have the largest pipeline we've ever had as we go into the year.
Bernshteyn placed huge emphasis on opportunities in the market that are yet to be fully tapped into:
First is our enterprise business. Many of the largest companies in the world have partnered with Coupa and are seeing incredible success. We have strong retention rates. We have an incredibly rich library of customer advocacy, and we frequently see business leaders who have used Coupa [before], then bring Coupa to their new employers when they change companies. Even with incredible organizations such as Amazon, BMW, Procter & Gamble, Unilever and Walmart already among our community of customers, our core penetration into the Global 2000 is still below 20%.
Then there’s the mid-market segment, he said:
Tens of thousands of mid-market companies around the globe are in the process of taking their first steps into the world of digital transformation. We're seeing meaningful growth in our mid-market business over the last two years. And with less than 2,000 mid-market customers in our community thus far, we are in the very early stages of penetration in this segment.
And there are new offerings to expand the firm’s functional footprint, he added, noting:
Our current customers are subscribing to less than 1/5 of our total platform, and new customers are landing with increasingly more modules. Some of the growth areas I'll highlight are Supply Chain, Coupa Pay, Treasury, as well as Travel & Expense, all of which are in the very early stages in their respective journeys. We anticipate all these sectors to be accelerators for our long-term growth rate.
For Coupa, the focus now is doubling down on a three wave strategy, said Bernshteyn - capturing all spend; optimizing “every dollar spent”; and amplifying community value. To illustrate the first of these, he pointed to Coupa Pay:
We are transforming the world of payments by delivering a fully-unified solution that leverages the Coupa Business Spend Management platform to centralize and streamline payments for organizations. We continue to see strong customer growth momentum. Q4 was yet another quarter where the attach rate on new customer deals was meaningfully above 30%. For mid-market specifically, the Q4 attach rate was well over 50%. Though we are still in the early stages of the Coupa Pay trajectory, we're starting to see noticeable increases in our Total Payment Volume (TPV) being processed through our payments hub as more and more customers go live.
As an example of optimization of spend, he turned to the use case of a supply chain design and planning company:
We have a large South American company in the gas station and convenience store business, which is using our supply chain offering to design their delivery network and to identify their transportation needs. These insights are then being used to execute sourcing events using the Coupa Sourcing Optimization solution. This customer has a distribution-centric business. The margins are thin and every bit of savings count. By using our supply chain and sourcing solutions in tandem, they are seeing clear optimization of their supply chain related quality as well as spend.
There are other examples of these sort of benefits, he added, pointing to semi-conductor manufacturer Onsemi, which has reduced its supply chain decision making time from about 2.5 weeks to just a few days, while also generating 10% to 15% improvements in capital efficiency and savings, or IKEA, which has reduced its average decision-making time from 5 days all the way down to 5 minutes.
Meanwhile community value is being driven by Community.ai, with real-time spend data from the Coupa community worldwide being used to come up with ways for customers to be more efficient, profitable and sustainable. Bernshteyn again turned to use case exemplars to make his point:
Saint-Gobain, a global multi-billion dollar manufacturing company, is leveraging community data to reach its goal of being carbon neutral by 2050. They have reduced transport emissions by an average of 13% - and in some cases by as much as 60%. CHEP, a pallet and container pooling company, has used Coupa to help improve the efficiency of their supply chain, reducing CO2 emissions per unit of delivery by 33%. The American Red Cross is using context-aware prescriptions to increase spend with diverse suppliers thus far by 37%.
Unreasonable expectations are hardly uncommon on Wall Street, but the volatility - to say the least - of the current macro-environment does suggest that this is something we can expect to see more of in the coming weeks and months. 'Keep calm and carry on' is a mindset that everyone could do well to bear in mind - and adjust some thinking. Coupa probably has better predictive data on the state of the economy than the market does.
For his part, Bernshteyn was commendably pragmatic when, on the back of accentuating the positives, he stated:
Having said that, there's obviously plenty of uncertainty out there, and we really pride ourselves on saying something and delivering on it, and we're not going to change that approach.
Nor should he.
In passing, another announcement of note from Coupa yesterday was its successful attainment of FedRAMP public sector authorization for us in the US Government. That’s a hugely lucrative market as others such as ServiceNow, have found and is a big tick in the box for Coupa. As Bernshteyn observed:
It is no easy task to complete the authorization process.
But it’s worth the effort and should position Coupa well to build on its existing government customer foundation.