Why Coupa Software Is Sinking Today

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What happened

In response to reporting of fiscal third-quarter results, shares of Coupa Software (NASDAQ: COUP), a software-as-a-service company that focuses on procurement, invoicing, and expense-management solutions, fell 10% as of 2:45 p.m. EST on Tuesday.

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So what

Here are the highlights from the third quarter:

  • Revenue grew 42% to $67.5 million. That number sailed past the $62.6 million that Wall Street was expecting.
  • GAAP net loss was $9.6 million, or $0.17 per share.
  • Non-GAAP net income nearly doubled to $5.5 million, or $0.08. Market watchers were expecting a loss of $0.03 per share, so this was also a significant beat.

Guidance looked favorable, too:

  • Revenue in the upcoming quarter is expected to land between $67.8 million and $68.3 million. That's ahead of the $64.1 million that Wall Street expected.
  • Non-GAAP net income per share in the next quarter is expected to be break-even. That's also better than the current estimate of a $0.09-per-share loss.
  • Full year fiscal 2019 revenue is expected to be between $253 million and $253.5 million. Non-GAAP net income per share is expected to be between $0.11 and $0.13 per share. Both of these figures are ahead of the current estimates.

Given the strong results and bullish guidance, the most likely reason for Coupa's decline today is that the stock's valuation was simply too high. Shares traded for about 18 times trailing sales prior to today's fall, which is quite rich.

What's more, the overall stock market is falling hard today, so Coupa probably just picked a tough day to report earnings.

Now what

Coupa's strong growth rates clearly indicate that the company is having a lot of success with signing up new customers. What's more, the company should be on the cusp of reaching GAAP profitability soon, which is another huge positive for investors.

Overall, I see nothing in this earnings report to suggest that this stock is in trouble. If you were a bullish on Coupa's stock yesterday, I see no reason to change your tune today.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of Coupa Software. The Motley Fool has a disclosure policy.