Coupa (COUP) MorningStar Analyst Report

Morningstar Equity Analyst Report | Report as of 7 Dec 2020 22:45, UTC | Reporting Currency: USD | Trading Currency: USD
| Exchange: NASDAQ Page 1 of 17
Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation
323.94 USD 174.00 USD 1.86 23.08 USD Bil Narrow Positive Very High Standard
7 Dec 2020
7 Dec 2020 9 Sep 2020 02:46, UTC
Price vs. Fair Value
Last Close: 323.94

400 Fair Value: 174.00
9 Sep 2020 02:46, UTC
300 Overvalued
Undervalued
200
100
0
2015 2016 2017 2018 2019 YTD
— — — — 1.13 1.86 Price/Fair Value
— — 24.83 101.35 132.66 121.50 Total Return %
Morningstar Rating
Total Return % as of 7 Dec 2020. Last Close as of 7 Dec 2020. Fair Value as of 9 Sep 2020 02:46, UTC.
Contents
1 Analyst Note (8 Dec 2020) Narrow-Moat Coupa Maintains Growth Trajectory Amid
2 Business Description
2 Business Strategy & Outlook (7 Dec 2020) Pandemic
2 Bulls Say / Bears Say (7 Dec 2020)
4 Economic Moat (7 Dec 2020) Analyst Note Nupur Balain, Equity Analyst, 8 Dec 2020
7 Fair Value and Profit Drivers (7 Dec 2020)
8 Risk and Uncertainty (7 Dec 2020)
Narrow-moat Coupa Software reported strong third-quarter results which support our thesis that Coupa
8 Capital Allocation (7 Dec 2020)
is well-poised for robust future growth, reflected by a rapidly expanding customer base, solid user
9 Analyst Notes Archive
13 Financials metrics, and growth in use cases.
14 Research Methodology for Valuing Companies We are raising our fair value to $249 from $174. Shares jumped 3% after hours due to stronger-than-
Important Disclosure
expected third-quarter performance and an improved fourth quarter outlook. Shares are currently
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of
overvalued, and we recommend investors wait for a margin of safety before buying the stock.
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and
Investment Research Policy. For information regarding conflicts of interest, please Revenue was up 31% year over year, coming in at $133 million. This far surpassed management
visit: http://global.morningstar.com/equitydisclosures.
guidance of $123 million to $124 million, buoyed by increased adoption of Coupa's BSM platform.
The primary analyst covering this company does not own its stock.
Subscription revenue grew 31% year over year while professional services revenue expanded by 28%
over the same period. Growth was supported by expansion within emerging markets, as well as higher
enterprise adoption within the U.S. A notable case of enterprise adoption was Walmart, which
broadened its use of Coupa's Procure-to-Pay platform from just domestic operations to worldwide. We
believe that as more and more enterprises adopt Coupa's platform, the firm will be able to scale up
rapidly and drive strong top line growth in the long run. The company reported non-GAAP earnings per
share of $0.18, beating CapIQ consensus estimates of $0.01.
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Morningstar Equity Analyst Report | Report as of 7 Dec 2020 22:45, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ Page 2 of 17

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Sector Industry
a Technology Software - Application For the fourth quarter, management expects revenue of $145.5 million at the midpoint, or approximately
Business Description 31% year-over-year growth. Non-GAAP operating loss is expected to be between $6 million and $8
Coupa Software is a cloud-based, business spending million, with a non-GAAP net loss per share between $0.11 and $0.13. This is a result of the acquisition
management platform that provides companies with
of Llamasoft, which will dampen results for a few quarters until integration is complete and Coupa can
more control and visibility into how they spend money.
benefit from generated synergies.
Since it was founded in 2006, Coupa has connected
buyers with suppliers and helped buyers save money by
Business Strategy & Outlook Nupur Balain, Equity Analyst, 7 Dec 2020
improving procurement, expense management, and
invoice processing. The company is headquartered in Coupa Software offers a cloud-based business spend management platform that helps businesses
San Mateo, California, and went public in October 2016. control, monitor, and analyze expenditures to realize cost savings and improve operational efficiency.
With a platform encompassing almost 1,400 businesses and over 5 million suppliers, Coupa offers an
end-to-end spend management platform covering procurement, invoicing, payments, cost analytics, and
more. As the firm’s platform continues to expand and incorporate broader spend management solutions,
we believe narrow moat Coupa will exhibit healthy long-term growth.
With Coupa, businesses get insights into spending habits, inventory requirements, supplier reliability,
and other expense-related data. This drives real time analytics of spend data via Coupa’s prescriptive
insights and supports meaningful cost savings. The firm mainly specializes in indirect spending, which is
expenditure to support daily business operations, though it has recently begun to expand its footprint
within direct spending/supply chain management as well. Coupa’s platform also offers automation of
invoicing and expenditures, pre-negotiated supplier discounts, reverse auctions, contract management,
prescriptive analytics, and supplier analysis.
Coupa’s moat is supported by strong user metrics, with gross retention north of 95% and net retention
over 112%. Cumulative spend under management has grown at a torrid pace, nearing $2 trillion as of
the latest fiscal year. This has been supported by customer growth at an average of 35% over the last
four fiscal years. We believe that growth in new customers accompanied by introduction of new
products to improve spend management capabilities will allow Coupa to reach its $1 billion revenue
target by fiscal 2024.
Coupa has made a high level of investments into its platform to provide a more holistic spend
management tool, most recently expanding its direct spend management offering. As the firm
introduces new modules, we believe its product will become increasingly attractive to businesses,
enabling Coupa to remain competitive in the procure-to-pay arena.
Bulls Say Nupur Balain, Equity Analyst, 7 Dec 2020
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Competitors
Coupa Software Inc COUP Salesforce.com Inc CRM ServiceNow Inc NOW
Last Close
Fair Value Last Close
323.94
253.00 533.25
Uncertainty : Medium
Fair Value Fair Value
Last Close
174.00 227.70 440.00
Uncertainty : Very High Uncertainty : Medium
Economic Moat Narrow Wide

Moat Trend Positive Positive —
Currency USD USD —
Fair Value 174.00 9 Sep 2020 02:46, UTC 253.00 26 Aug 2020 03:29, UTC ——
1-Star Price 304.50 341.55 —
5-Star Price 87.00 177.10 —
Assessment 59% Significantly OverValued 8% Fairly Valued 84% —
Morningstar Rating Q 7 Dec 2020 22:16, UTC QQQ 7 Dec 2020 22:16, UTC —
Analyst Nupur Balain, Equity Analyst Dan Romanoff, Equity Analyst —
Capital Allocation Standard Standard —
Price/Fair Value 1.86 0.90 —
Price/Sales 45.97 10.36 225.07
Price/Book 54.05 5.17 22.17
Price/Earning 76.09 59.76 —
Dividend Yield —% —% —%
Market Cap 23.08 Bil 208.35 Bil 110.11 Bil
52-Week Range 99.01—353.55 115.29—284.50 208.55—395.80
Investment Style Mid Growth Large Growth —
u We expect Coupa to continue to expand its platform, which should further entrench customers within
Coupa and create monetization opportunities.

u Coupa exhibits solid customer retention metrics, with gross retention north of 95% and net retention
over 112%. This indicates the growing customer stickiness of its platform.
u Coupa’s robust supplier network, superior AI, and intuitive user interface should support the firm’s
ability to maintain a leadership position in the P2P space.
Bears Say Nupur Balain, Equity Analyst, 7 Dec 2020

u Coupa operates in a highly competitive environment and large incumbents could take market share
away from the firm.

u Coupa is dependent on implementation partners to co-sell its platform. It is possible that these partners
start offering alternative spend management platforms that limit Coupa’s growth.
u Acquisitions are a key part of Coupa’s growth strategy, and if these are not integrated with its platform
correctly, it could impede the user experience and lead to customer attrition.
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7 Dec 2020 9 Sep 2020 02:46, UTC
Economic Moat Nupur Balain, Equity Analyst, 7 Dec 2020

We believe Coupa Software warrants a narrow moat rating as a result of network effects and switching
costs associated with the firm's platform offerings. Coupa offers a leading business spend management
platform that helps businesses control, monitor, and analyze expenditures to realize cost savings as well
as improve operational efficiency. We believe Coupa benefits from robust network effects and switching
costs, as evidenced by strong machine learning capabilities, growing spend under management, and
solid user metrics. In our opinion, this will drive excess returns over the next 10 years.
With a platform encompassing over 1,400 businesses (mainly enterprises) and over 5 million suppliers,
Coupa offers an end-to-end spend management platform covering procurement, invoicing, payments,
cost analytics, and more. Businesses get real time insights into spending habits, inventory requirements,
supplier reliability, and other expense-related data on intuitive dashboards- this drives real time
analytics of spend data via Coupa's prescriptive insights and supports meaningful cost savings (can
have 3 to 6 month payback period for businesses). The firm mainly specializes in indirect spending,
which is expenditure to support daily business operations, though it has recently begun to expand its
footprint within direct spending/supply chain management as well. Coupa's platform also offers
automation of invoicing and expenditures, pre-negotiated supplier discounts, reverse auctions, contract
management, prescriptive analytics, and supplier analysis.
Consider the case of a company like Groupon, which uses Coupa's BSM platform for procurement,
invoicing, expenses, and analytics. Prior to employing Coupa, the P2P process was labor-intensive and
required the usage of manual spreadsheets that generated data inefficiencies. With Coupa, the
procurement team can now evaluate a wide range of suppliers signed up with Coupa before selecting
one that offers them the best product for the best price. Within Coupa, the team can place an order,
receive an invoice from the supplier, and make a payment within a relatively short period of time and
automate the entire process. This improves employee productivity and generates time-saving
efficiencies. As the transaction occurs, Coupa's Community Intelligence product can analyze Groupon's
spending habits compared with the industry, identify areas to optimize expenditure, and provide real-
time cost saving solutions. For instance, Groupon's finance team can now receive insights on company
procurement practices and cost saving recommendations without having to conduct the analysis itself.
Coupa's moat is derived from network effects, which stem from a variety of sources. First, the company's
core platform consists of businesses and suppliers, both of which benefit from network effects. As more
and more businesses adopt Coupa's platform, existing suppliers benefit as they can cater to a wider
range of customers and are able to earn more income; this growth in businesses is also attractive to
prospective suppliers who would be more inclined to sign on as the pool of potential customers grows.
Current business customers also benefit from a growing selection of suppliers, as they can more
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effectively source goods and services and negotiate discounts to drive further cost savings. As the pool
of suppliers grows, prospective businesses find Coupa's platform more beneficial as they have a greater
variety of products to choose from. This virtuous cycle continues, as more businesses lead to more
suppliers which lead to more businesses joining Coupa's platform.
As mentioned, Coupa's platform can deliver customers a payback period of 3 to 6 months, driving cost
savings and efficiencies for them. Given the comprehensive nature of the product, supported by end-to-
end P2P capabilities, businesses are increasingly encouraging their suppliers to join Coupa's platform to
streamline the transaction process. Meanwhile, suppliers can enjoy the full capabilities of Coupa's
product for free and can onboard rapidly, motivating them to sign up to maintain existing customer
relationships and foster new ones. A key benefit of Coupa's platform is that the company does not
charge businesses and suppliers on a transaction-by-transaction basis, allowing a vast portion of
purchasing activity to take place without penalizing users. Other P2P firms can charge businesses based
on purchase order size and frequency, and take a cut of the price paid to the supplier as well. As a
result, businesses tend to control a smaller amount of spending within the P2P platform and miss out on
some of the possible cost savings, while suppliers do not reap full profits from the sale of their products.
Since Coupa is free to suppliers and charges businesses on a contractual basis, users can derive more
value from its platform compared with those of some other competitors.
Second, Coupa's Community Intelligence product is best-in-class in the P2P space, employing artificial
intelligence (AI) capabilities on spend and supplier data to help generate cost savings and support
operational efficiency. As the number of users and cumulative spend under management (CSUM) within
Coupa grows, Coupa's AI has access to greater quantities of spending data. Its software can iterate
upon this data to provide businesses insights on how to improve spend management, control risks, and
drive operational efficiencies based on best practices seen within the customer's industry. Spend
management use cases include supplier insights and savings opportunities, risk use cases include fraud
detection, and operational use cases include anonymized benchmarking against other customers to
identify potential ways to drive efficiency. Existing customers benefit from new customers as Coupa's AI
has more data to iterate on and identify more spend optimization opportunities, and new customers
benefit from existing customers as their data has improved Coupa's prescriptive capabilities.
As of the latest fiscal year, Coupa had almost 1,400 active customers, up 41% year over year. This is
indicative of the growing utility of Coupa's platform to businesses, especially as the firm rolls out new
modules that address additional use cases. This is backed by growth in average revenue per user
(ARPU) of 9% over the last four fiscal years as average contract value grows and businesses incorporate
more Coupa modules to drive spend management and efficiency. Growth in customers has led to rapid
expansion in CSUM, which has grown over 50% in the last year to almost $2 trillion. In addition, Coupa
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has gained approximately 1 million suppliers in the last year, and touts over 5 million suppliers on its
platform. Growth in suppliers and businesses contributes to Coupa's network effects moat as it
strengthens the platform marketplace. Increasing CSUM supports Coupa's Community Intelligence
software and also promotes strong network effects.
Switching costs also serve as a moat source for Coupa, and stem from a variety of sources. Our general
view is that enterprise software companies mainly tend to compete with each other on the basis of
features and functionality. Per Gartner, Coupa is a leader in the P2P space and has maintained this
position for some time. As the firm continues to innovate and maintain a comprehensive set of products
for businesses, we believe Coupa can maintain its competitive positioning.
We contend that Coupa benefits from customer switching costs in several ways. First, we believe that
the implementation of Coupa's platform requires time and effort, with time to deployment spanning
several months depending on the size and complexity of the customer. Businesses require professional
services for integration, with enterprise customers necessitating more complex deployments. Coupa
adopts a “co-sell” approach, and over two-thirds of deployments are conducted alongside
implementation partners such as KPMG and Deloitte. Beyond the core BSM platform, businesses can
add on supporting modules such as contract management, strategic sourcing, and contingent workforce
to supplement Coupa's key capabilities. The platform often needs to be integrated with different
departments within a business, and the sophistication of deployment increases with the number of
touchpoints that generate spending data. Given the complexity of implementation and the investment
required in executing the platform, a customer would be less inclined to shift to a different vendor,
giving rise to switching costs.
Second, once Coupa's software is integrated, switching over to a new platform would give rise to
business disruption and operational risk, potentially leading to inefficiencies and data loss. For instance,
if a customer decided to replace Coupa's platform with that of a different vendor, it would lose access to
potentially crucial supplier information and relationships, the capability to negotiate discounts, and the
cost-saving insights garnered by Community Intelligence. Furthermore, employees would need to be
trained on the new platform, which could be time consuming and lead to erroneous usage, thus
impacting productivity. Alongside productivity costs, the business would have to contend with the direct
time and other expenses associated with replacing Coupa's platform with that of a different vendor.
These include paying third party systems integrators and having to spend internal hours on correctly
incorporating functionalities that could potentially provide the same products as Coupa. In addition,
given the mission criticality of Coupa's platform within different operational areas, the business would
have to run Coupa's software parallel to the new vendor's as data migrates over, leading to high
monetary costs as well.
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As mentioned, Coupa exhibits strong user metrics, with customer growth an average of 35% over the
last four fiscal years. This has been accompanied by upselling to existing customers, as evidenced by
dollar-based net expansion, or DBNE, consistently above 110% over time. Even though the firm has
raised prices over the last few years, gross retention remains strong as well, historically clocking in
above 95%; this inherent customer stickiness in spite of higher prices is indicative of the high utility
businesses derive from Coupa's platform.
The procure-to-pay landscape remains fragmented with several small players and a few large leaders
dominating the space. Coupa is the top player in the arena, and has been for quite some time, trailed by
other incumbents like SAP's Ariba and Oracle Procure-to-Pay. While these firms also offer end-to-end
solutions, Coupa has a more comprehensive platform and is focused on continuous innovation in the
P2P space. Meanwhile, this is not the primary focus for SAP or Oracle and innovation has been slower;
their platforms do not have the same functionality or user experience as Coupa. In addition, Coupa's AI
capabilities are best in class, with other players not providing the same breadth and depth of analytics
from a spend and operational efficiency perspective. As a result, we contend Coupa will be able to
maintain its leadership position in this space.
Fair Value and Profit Drivers Nupur Balain, Equity Analyst, 7 Dec 2020
We assign Coupa a fair value estimate of $249 per share, implying a fiscal 2021 enterprise value-to-
sales multiple of 28 times.
Within our base scenario, we expect revenue to grow at a compound annual growth rate of 33%
through fiscal 2025. Driving this growth are new customer additions (we expect a 29% CAGR over the
next five years), as well as the expansion of Coupa’s platform into new modules that will support cross-
selling opportunities. This cross-selling opportunity is supported by Coupa’s organic and inorganic
investments within its platform, which should allow the company to expand its spend management
capabilities beyond just procurement into other areas such as payments. This is bolstered by Community
Intelligence, which powers AI-driven insights into spending habits- as business spend within Coupa’s
platform grows, the value derived by businesses from Coupa’s AI grows as well. We believe that the
value of Coupa’s holistic spend management platform will drive new enterprise customer adoption and
further entrench existing customers within Coupa.
Historically, Coupa has reported GAAP gross margins of approximately 65.5% over the last five fiscal
years. We expect this to increase as new customers rapidly join Coupa’s platform, allowing the firm to
manage cloud infrastructure and implementation costs and benefit from scale-based leverage. We
expect Coupa to report an average GAAP gross margin of 67.2% over the next five years, though this
figure should grow to the low-80s both on a GAAP and non-GAAP basis as the business scales up.
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Coupa should benefit from operating leverage, and we expect expansion in GAAP operating margin from
negative 19% in fiscal 2020 to 4% in fiscal 2025. We also expect to see non-GAAP operating margins
grow into the high teens by fiscal 2025 compared with 8% in fiscal 2020. As the business scales, the
company should see this leverage translate into excess returns to the bottom line. Non-GAAP operating
margins ventured into positive territory in fiscal 2019. While GAAP operating margins are yet to turn
positive, we expect increasing scale to enable that possibility in the longer term.
Risk and Uncertainty Nupur Balain, Equity Analyst, 7 Dec 2020

We assign Coupa a very high uncertainty rating. First, Coupa is a highly acquisitive firm, having spent
over $2 billion on acquisitions since fiscal 2017. Alongside organic investments within its platform,
Coupa relies on acquisitions to bolster its product offerings and sustain high customer growth. The
success of the firm’s platform will depend on its ability to continue to effectively integrate these
acquisitions and provide a holistic spend management tool to customers.
Second, Coupa operates in a highly competitive space, with large ERP providers like SAP and Oracle
also offering similar services to Coupa. These firms have longer operating histories, more resources, and
better brand recognition, which delivers them an edge in this arena. SAP Ariba alone boasts over 3.8
million suppliers on its platform, with over $4 trillion in spend under management. Furthermore, the
industry has seen a trend of consolidation, and as large players expand their offerings via inorganic
investments, Coupa faces more pressure in maintaining its leadership position.
Third, Coupa opts to co-sell its products alongside implementation partners such as KPMG and Deloitte.
Over two-thirds of Coupa’s sales are conducted via such partners. This makes the firm highly dependent
on its ability to maintain relationships with them to support customer growth. If their partners prefer to
vend other software spend management tools, then Coupa could face a slowdown in sales and lose out
on potential customers.
Fourth, Coupa is yet to generate GAAP profitability as the firm maintains high level of investments into
the business. This leads to uncertainty regarding the timing of future profitability.
Capital Allocation Nupur Balain, Equity Analyst, 7 Dec 2020

We assign Coupa a Standard stewardship rating.
Coupa was founded by Dave Stephens and Noah Eisner in 2006 to provide a business spend
management platform that enabled businesses to better control expenses and derive insights from their
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spending habits. Stephens served as CEO for four years, before he was replaced by current CEO Robert
Bernshteyn in 2009. Bernshteyn touts an impressive professional record, having held previous positions
at SuccessFactors and Siebel Systems. He helped take Coupa public in 2016 and has successfully set up
the company as a leader in the P2P space. He is supported by CFO Todd Ford, who was previously CFO
at MobileIron. Other member’s of Coupa’s management team exhibit strong software backgrounds as
well, coming from the likes of SAP, IBM, and Adobe Systems. As of April 2020, Bernshteyn owns 2.3% of
outstanding shares, with all executive officers and directors collectively holding a 3.4% stake.
Coupa does not pay dividends, instead focused on reinvesting returns to support growth. This is
reflected in the company’s decision to allocate capital to strategic acquisitions; its largest acquisition to
date was LlamaSoft for approximately $1.5 billion in November 2020, and additional recent acquisitions
include BELLIN Group and ConnXus for undisclosed amounts earlier in the same year. Coupa is highly
acquisitive, with other purchases including Exari Group for $215 million in May 2019, Yapta Inc for an
undisclosed amount in January 2020, and DCR Workforce for $73 million in August 2018. Llamasoft
augments Coupa’s direct spend management capabilities by providing AI-driven spend management
and insights. Additionally, Exari provides contract automation solutions, Yapta supports travel spend
management, and DCR Workforce is a contingent workforce software provider. While it is still too early
to determine the success of its newer acquisitions such as Llamasoft or Exari, we believe these strategic
acquisitions have been accretive to Coupa’s top-line as they introduce new modules within Coupa’s
platform that address an expanding range of use cases and further entrench customers within its
software. We expect management to continue to pursue similar acquisitions in the future to supplement
its investments in organic growth and build out a comprehensive spend management platform.
Alongside acquisitions, stock-based compensation has comprised a large portion of Coupa’s capital
allocation strategy. Over the last five fiscal years, Coupa has spent over $180 million in stock-based
compensation, which is much higher than capital expenditures over the same period. This figure has
grown by over 50% from fiscal 2019 to fiscal 2020. This represented about 25% of operating expenses in
fiscal 2020, compared with approximately 24% in fiscal 2019. Meanwhile, capital expenditures have
averaged approximately 3% of revenue over the last five fiscal years.
Analyst Notes Archive
Narrow-Moat Coupa Maintains Growth Trajectory Amid Pandemic —

Narrow-moat Coupa Software reported strong third-quarter results which support our thesis that Coupa
is well-poised for robust future growth, reflected by a rapidly expanding customer base, solid user
metrics, and growth in use cases.
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We are raising our fair value to $249 from $174. Shares jumped 3% after hours due to stronger-than-
expected third-quarter performance and an improved fourth quarter outlook. Shares are currently
overvalued, and we recommend investors wait for a margin of safety before buying the stock.
Revenue was up 31% year over year, coming in at $133 million. This far surpassed management
guidance of $123 million to $124 million, buoyed by increased adoption of Coupa's BSM platform.
Subscription revenue grew 31% year over year while professional services revenue expanded by 28%
over the same period. Growth was supported by expansion within emerging markets, as well as higher
enterprise adoption within the U.S. A notable case of enterprise adoption was Walmart, which
broadened its use of Coupa's Procure-to-Pay platform from just domestic operations to worldwide. We
believe that as more and more enterprises adopt Coupa's platform, the firm will be able to scale up
rapidly and drive strong top line growth in the long run. The company reported non-GAAP earnings per
share of $0.18, beating CapIQ consensus estimates of $0.01.
For the fourth quarter, management expects revenue of $145.5 million at the midpoint, or approximately
31% year-over-year growth. Non-GAAP operating loss is expected to be between $6 million and $8
million, with a non-GAAP net loss per share between $0.11 and $0.13. This is a result of the acquisition
of Llamasoft, which will dampen results for a few quarters until integration is complete and Coupa can
benefit from generated synergies. K
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Competitors Price vs. Fair Value
Salesforce.com Inc CRM
Fair Value: 253.00

26 Aug 2020 03:29, UTC
400
Last Close: 227.70
300 Overvalued
Undervalued
200
100
0
2015 2016 2017 2018 2019 YTD
1.15 0.69 0.78 0.76 0.87 0.90 Price/Fair Value
32.19 -12.68 49.33 33.98 18.74 40.00 Total Return %
Morningstar Rating
Total Return % as of 7 Dec 2020. Last Close as of 7 Dec 2020. Fair Value as of 26 Aug 2020 03:29, UTC.
Snowflake Inc Ordinary Shares - Class A SNOW
Last Close: 388.96

400 Fair Value: —
—
300 Overvalued
Undervalued
200
100
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ServiceNow Inc NOW
Last Close: 533.25

800 Fair Value: 440.00
29 Oct 2020 05:46, UTC
600 Overvalued
Undervalued
400
200
0
2015 2016 2017 2018 2019 YTD
1.12 0.79 0.97 0.81 0.94 1.21 Price/Fair Value
27.58 -14.12 75.40 36.55 58.56 88.88 Total Return %
Morningstar Rating
Total Return % as of 7 Dec 2020. Last Close as of 7 Dec 2020. Fair Value as of 29 Oct 2020 05:46, UTC.
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Morningstar Historical Summary

Financials as of 31 Jul 2020
Fiscal Year, ends 31 Jan 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD TTM
Revenue (USD K) — — — — — 50,845 83,678 133,775 186,780 260,366 245,135 458,371
Revenue Growth % — — — — — — 64.6 59.9 39.6 39.4 38.9 43.8
EBITDA (USD K) — — — — — -25,259 -42,495 -30,849 -34,093 -33,101 -6,542 -15,220
EBITDA Margin % — — — — — -49.7 -50.8 -23.1 -18.3 -12.7 -2.7 -3.3
Operating Income (USD K) — — — — — -26,636 -45,253 -35,424 -44,962 -47,360 -37,549 -70,363
Operating Margin % — — — — — -52.4 -54.1 -26.5 -24.1 -18.2 -15.3 -15.4
Net Income (USD K) — — — — — -27,300 -46,156 -37,607 -43,805 -55,524 -57,932 -108,302
Net Margin % — — — — — -53.7 -55.2 -28.1 -23.5 -21.3 -23.6 -23.6
Diluted Shares Outstanding (K) — — — — — 48,111 48,111 19,988 52,999 57,716 66,545 65,046
Diluted Earnings Per Share (USD) — — — — — -0.57 -0.96 -1.88 -0.83 -0.96 -0.87 -1.66
Dividends Per Share (USD) — — — — — — — — — — — —
Valuation as of 30 Nov 2020

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Recent Qtr TTM
Price/Sales — — — — — — 10.2 9.5 15.6 25.4 38.9 46.7
Price/Earnings — — — — — — -29.4 56.8 -74.6 -107.5 -163.9 -200.0
Price/Cash Flow — — — — — — -75.8 144.9 140.8 161.3 204.1 243.9
Dividend Yield % — — — — — — — — — — — —
Price/Book — — — — — — 7.2 8.5 12.0 20.3 44.2 54.9
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 -0.3 0.0 0.0
Operating Performance / Profitability as of 31 Jul 2020
Fiscal Year, ends 31 Jan 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD TTM
ROA % — — — — — -39.2 -44.1 -17.8 -10.2 -8.5 -3.0 -5.8
ROE % — — — — — — — -111 -21.1 -20.1 -13.0 -24.6
ROIC % — — — — — — — -108 -12.4 -8.8 -2.2 -4.3
Asset Turnover — — — — — 0.7 0.8 0.6 0.4 0.4 0.1 0.2
Financial Leverage
Fiscal Year, ends 31 Jan 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Recent Qtr TTM
Debt/Capital % — — — — — — — — 40.4 — 67.5 —
Equity/Assets % — — — — — — — 61.3 42.0 42.3 18.7 —
Total Debt/EBITDA — — — — — — — — -4.8 -5.3 -227.8 —
EBITDA/Interest Expense Infinite Infinite Infinite Infinite Infinite — — -23.1 -67.9 -2.6 -0.2 -0.3
Morningstar Analyst Historical/Forecast Summary as of 08 Sep 2020

Financials Estimates Forward Valuation Estimates
2018 2019 2020 2021 2022
Fiscal Year, ends 31 Jan 2018 2019 2020 2021 2022
Price/Sales 20.2 26.7 46.3 36.8 29.2
Revenue (USD Mil) 260 390 499 627 792 Price/Earnings 483.1 309.9 719.9 1,349.8 330.6
Revenue Growth % 39.4 49.7 27.9 25.8 26.3 Price/Cash Flow 175.8 185.1 -2,073.8 215.7 125.3
EBITDA (USD Mil) -31 -35 -47 -45 6 Dividend Yield % — — — — —
EBITDA Margin % -12.0 -9.1 -9.5 -7.2 0.8 Price/Book — — — — —
EV/EBITDA -161.3 -292.4 -490.5 -514.6 3,612.7
Operating Income (USD Mil) -47 -73 -97 -98 -49
Operating Margin % -18.2 -18.8 -19.4 -15.6 -6.2
Net Income (USD Mil) 11 33 30 15 63
Net Margin % 4.1 8.4 6.0 2.5 8.0
Diluted Shares Outstanding (Mil) 58 62 66 65 65
Diluted Earnings Per Share(USD) 0.18 0.52 0.45 0.24 0.98
Dividends Per Share(USD) 0.00 0.00 0.00 0.00 0.00
ß
Research Methodology for Valuing Companies
Overview turns on invested capital (or ROIC) over and above our es-
timate of a firm’s cost of capital, or weighted average Stage I: Explicit Forecast
At the heart of our valuation system is a detailed projec-
tion of a company’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are In this stage, which can last five to 10 years, analysts
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five make full financial statement forecasts, including items
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching such as revenue, profit margins, tax rates, changes in
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale. workingcapital accounts, and capital spending. Based on
ally standardized, proprietary discounted cash flow, or these projections, we calculate earnings before interest,
DCF, modeling templates. We use scenario analysis, inde- Companies with a narrow moat are those we believe are after taxes (EBI) and the net new investment (NNI) to de-
pth competitive advantage analysis, and a variety of other more likely than not to achieve normalized excess returns rive our annual free cash flow forecast.
analytical tools to augment this process. Moreover, we for at least the next 10 years. Wide-moat companies are
Stage II: Fade
think analyzing valuation through discounted cash flows those in which we have very high confidence that excess
The second stage of our model is the period it will take
presents a better lens for viewing cyclical companies, returns will remain for 10 years, with excess returns more
the company’s return on new invested capital—the re-
high-growth firms, businesses with finite lives (e.g., likely than not to remain for at least 20 years. The longer
turn on capital of the next dollar invested (“RONIC”)—to
mines), or companies expected to generate negative a firm generates economic profits, the higher its intrinsic
decline (or rise) to its cost of capital. During the Stage II
earnings over the next few years. That said, we don’t dis- value. We believe low-quality, no-moat companies will
period, we use a formula to approximate cash flows in
miss multiples altogether but rather use them as support- see their normalized returns gravitate toward the firm’s
lieu of explicitly modeling the income statement, balance
ing cross-checks for our DCF-based fair value estimates. cost of capital more quickly than companies with moats.
sheet, and cash flow statement as we do in Stage I. The
We also acknowledge that DCF models offer their own length of the second stage depends on the strength of
challenges (including a potential proliferation of estim- When considering a company's moat, we also assess
the company’s economic moat. We forecast this period to
ated inputs and the possibility that the method may miss whether there is a substantial threat of value destruction,
last anywhere from one year (for companies with no eco-
shortterm market-price movements), but we believe these stemming from risks related to ESG, industry disruption,
nomic moat) to 10–15 years or more (for wide-moat com-
negatives are mitigated by deep analysis and our financial health, or other idiosyncratic issues. In this con-
panies). During this period, cash flows are forecast using
longterm approach. text, a risk is considered potentially value destructive if its
four assumptions: an average growth rate for EBI over the
occurrence would eliminate a firm’s economic profit on a
period, a normalized investment rate, average return on
Morningstar’s equity research group (”we,” “our”) be- cumulative or midcycle basis. If we deem the probability
new invested capital (RONIC), and the number of years
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize
until perpetuity, when excess returns cease. The invest-
future cash flows it can generate. The Morningstar Rating the company as possessing an economic moat.
ment rate and return on new invested capital decline un-
for stocks identifies stocks trading at a discount or premi- til a perpetuity value is calculated. In the case of firms
um to their intrinsic worth—or fair value estimate, in To assess the sustainability of excess profits, analysts per-
that do not earn their cost of capital, we assume marginal
Morningstar terminology. Five-star stocks sell for the form ongoing assessments of the moat trend. A firm’s
ROICs rise to the firm’s cost of capital (usually attribut-
biggest risk adjusted discount to their fair values, where- moat trend is positive in cases where we think its sources
able to less reinvestment), and we may truncate the
as 1-star stocks trade at premiums to their intrinsic worth. of competitive advantage are growing stronger; stable
second stage.
where we don’t anticipate changes to competitive ad-
Four key components drive the Morningstar rating: (1) our vantages over the next several years; or negative when
Stage III: Perpetuity
assessment of the firm’s economic moat, (2) our estimate we see signs of deterioration.
Once a company’s marginal ROIC hits its cost of capital,
of the stock’s fair value, (3) our uncertainty around that
we calculate a continuing value, using a standard per-
fair value estimate and (4) the current market price. This 2. Estimated Fair Value
petuity formula. At perpetuity, we assume that any
process ultimately culminates in our singlepoint star rat- Combining our analysts’ financial forecasts with the
growth or decline or investment in the business neither
ing. firm’s economic moat helps us assess how long returns
creates nor destroys value and that any new investment
on invested capital are likely to exceed the firm’s cost of
provides a return in line with estimated WACC.
1. Economic Moat capital. Returns of firms with a wide economic moat rat-
The concept of an economic moat plays a vital role not ing are assumed to fade to the perpetuity period over a
Because a dollar earned today is worth more than a dollar
only in our qualitative assessment of a firm’s long-term longer period of time than the returns of narrow-moat
earned tomorrow, we discount our projections of cash
investment potential, but also in the actual calculation of firms, and both will fade slower than no-moat firms, in-
flows in stages I, II, and III to arrive at a total present
our fair value estimates. An economic moat is a structural creasing our estimate of their intrinsic value.
value of expected future cash flows. Because we are
feature that allows a firm to sustain excess profits over a modeling free cash flow to the firm—representing cash
long period of time. We define economic profits as re- Our model is divided into three distinct stages:
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
Morningstar Equity Research Star Rating Methodology weighted average of the costs of equity, debt, and pre-
ferred stock (and any other funding sources), using ex-
pected future proportionate long-term, market-value
weights.
3. Uncertainty Around That Fair Value Estimate

Morningstar's Uncertainty Rating captures a range of
likely potential intrinsic values for a company and uses it
ß
to assign the margin of safety required before investing, Morningstar Equity Research Star Rating Methodology
which in turn explicitly drives our stock star rating system.
The Uncertainty Rating represents the analysts' ability to
bound the estimated value of the shares in a company
around the Fair Value Estimate, based on the character-
istics of the business underlying the stock, including oper-
ating and financial leverage, sales sensitivity to the over-
all economy, product concentration, pricing power, expos-
ure to material ESG risks, and other company-specific
factors.
Analysts consider at least two scenarios in addition to

their base case: a bull case and a bear case. Assumptions
are chosen such that the analyst believes there is a 25%
probability that the company will perform better than the
bull case, and a 25% probability that the company will
perform worse than the bear case. The distance between
the bull and bear cases is an important indicator of the
uncertainty underlying the fair value estimate. In cases
where there is less than a 25% probability of an event,
but where the event could result in a material decline in
value, analysts may adjust the uncertainty rating to re-
flect the increased risk. Analysts may also make a fair
value adjustment to reflect the impact of this event.
Our recommended margin of safety widens as our uncer-

tainty of the estimated value of the equity increases. The daily basis, and the star rating is automatically re-calcu- Scenario analysis developed by our analysts indicates
more uncertain we are about the estimated value of the lated at the market close on every day the market on that the current market price represents an excessively
equity, the greater the discount we require relative to our which the stock is listed is open. Our analysts keep close pessimistic outlook, limiting downside risk and maximiz-
estimate of the value of the firm before we would recom- tabs on the companies they follow, and, based on thor- ing upside potential.
mend the purchase of the shares. In addition, the uncer- ough and ongoing analysis, raise or lower their fair value
tainty rating provides guidance in portfolio construction estimates as warranted. QQQQ We believe appreciation beyond a fair risk-ad-
based on risk tolerance. justed return is likely.
Please note, there is no predefined distribution of stars.
Our uncertainty ratings for our qualitative analysis are That is, the percentage of stocks that earn 5 stars can QQQ Indicates our belief that investors are likely to re-
low, medium, high, very high, and extreme. fluctuate daily, so the star ratings, in the aggregate, can ceive a fair risk-adjusted return (approximately cost of
serve as a gauge of the broader market’s valuation. When equity).
Margin of Safety there are many 5-star stocks, the stock market as a whole
Qualitative Analysis is more undervalued, in our opinion, than when very few QQ We believe investors are likely to receive a less than
Uncertainty Ratings QQQQQRating QRating companies garner our highest rating. fair risk-adjusted return.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium We expect that if our base-case assumptions are true the Q Indicates a high probability of undesirable risk-adjus-
High 40% Discount 55% Premium market price will converge on our fair value estimate over ted returns from the current market price over a multiyear
Very High 50% Discount 75% Premium time generally within three years (although it is im- time frame, based on our analysis. Scenario analysis by
Extreme 75% Discount 300% Premium possible to predict the exact time frame in which market our analysts indicates that the market is pricing in an ex-
prices may adjust). cessively optimistic outlook, limiting upside potential and
4. Market Price leaving the investor exposed to Capital loss.
Our star ratings are guideposts to a broad audience and
The market prices used in this analysis and noted in the
individuals must consider their own specific investment Other Definitions
report come from exchange on which the stock is listed
goals, risk tolerance, tax situation, time horizon, income Last Price: Price of the stock as of the close of the mar-
which we believe is a reliable source.
needs, and complete investment portfolio, among other ket of the last trading day before date of the report.
factors.
For more details about our methodology, please go to
https://shareholders.morningstar.com. Capital Allocation Rating: Our Capital Allocation (or
The Morningstar Star Ratings for stocks are defined be- Stewardship) Rating represents our assessment of the
low: quality of management’s capital allocation, with particu-
Morningstar Star Rating for Stocks
QQQQQ We believe appreciation beyond a fair risk ad- lar emphasis on the firm’s balance sheet, investments,
Once we determine the fair value estimate of a stock, we
justed return is highly likely over a multiyear time frame. and shareholder distributions. Analysts consider compan-
compare it with the stock’s current market price on a
ß
ies’ investment strategy and valuation, balance sheet jectives, experience, taxation status and financial posi- Conflicts of Interest
management, and dividend and share buyback policies. tion. u No interests are held by the analyst with respect to the
Corporate governance factors are only considered if they security subject of this investment research report.
are likely to materially impact shareholder value, though The information, data, analyses and opinions presented u Morningstar, Inc. may hold a long position in the secur-
either the balance sheet, investment, or shareholder dis- herein are not warranted to be accurate, correct, com- ity subject of this investment research report that ex-
tributions. Analysts assign one of three ratings: "Exem- plete or timely. Unless otherwise provided in a separate ceeds 0.5% of the total issued share capital of the se-
plary", "Standard", or "Poor". Analysts judge Capital Alloc- agreement, neither Morningstar, Inc. or the Equity Re- curity. To determine if such is the case, please click
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Standard rating is most common as most managers will able in the jurisdiction the recipient is located. u Analysts’ compensation is derived from Morningstar,
exhibit neither exceptionally strong nor poor capital alloc- Inc.’s overall earnings and consists of salary, bonus
ation. Except as otherwise required by law or provided for in a and in some cases restricted stock.
separate agreement, the analyst, Morningstar, Inc. and u Neither Morningstar, Inc. or the Equity Research Group
Capital Allocation (or Stewardship) analysis published pri- the Equity Research Group and their officers, directors receives commissions for providing research nor do
or to Dec. 9, 2020, was determined using a different pro- and employees shall not be responsible or liable for any they charge companies to be rated.
cess. Beyond investment strategy, financial leverage, and trading decisions, damages or other losses resulting from, u Neither Morningstar, Inc. or the Equity Research Group
dividend and share buyback policies, analysts also con- or related to, the information, data, analyses or opinions is a market maker or a liquidity provider of the security
sidered execution, compensation, related party transac- within the report. The Equity Research Group encourages noted within this report.
tions, and accounting practices in the rating. recipients recipients of this report to read all relevant is- u Neither Morningstar, Inc. or the Equity Research Group
sue documents (e.g., prospectus) pertaining to the secur- has been a lead manager or co-lead manager over the
Risk Warning ity concerned, including without limitation, information previous 12-months of any publicly disclosed offer of
Please note that investments in securities are subject to relevant to its investment objectives, risks, and costs be- financial instruments of the issuer.
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antee that the intended investment objectives will be necessary, to seek the advice of a legal, tax, and/or ac- does have arrangements with financial institutions to
achieved. Past performance of a security may or may not counting professional. provide portfolio management/investment advice some
be sustained in future and is no indication of future per- of which an analyst may issue investment research re-
formance. A security investment return and an investor’s The Report and its contents are not directed to, or inten- ports on. However, analysts do not have authority over
principal value will fluctuate so that, when redeemed, an ded for distribution to or use by, any person or entity who Morningstar’s investment management group’s busi-
investor’s shares may be worth more or less than their is a citizen or resident of or located in any locality, state, ness arrangements nor allow employees from the in-
original cost. A security’s current investment performance country or other jurisdiction where such distribution, pub- vestment management group to participate or influ-
may be lower or higher than the investment performance lication, availability or use would be contrary to law or ence the analysis or opinion prepared by them.
noted within the report. Morningstar’s Uncertainty Rating regulation or which would subject Morningstar, Inc. or its u Morningstar, Inc. is a publicly traded company (Ticker
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ß
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Morningstar Equity Analyst Report | Report as of 7 Dec 2020 22:45, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NASDAQ Page 1 of 17

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Price vs. Fair Value

Last Close: 323.94

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Bulls Say Nupur Balain, Equity Analyst, 7 Dec 2020

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Economic Moat Narrow Wide

Coupa and create monetization opportunities.

ability to maintain a leadership position in the P2P space.

Bears Say Nupur Balain, Equity Analyst, 7 Dec 2020

away from the firm.

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Economic Moat Nupur Balain, Equity Analyst, 7 Dec 2020

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Risk and Uncertainty Nupur Balain, Equity Analyst, 7 Dec 2020

Capital Allocation Nupur Balain, Equity Analyst, 7 Dec 2020

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Analyst Notes Archive

Narrow-Moat Coupa Maintains Growth Trajectory Amid Pandemic —

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Competitors Price vs. Fair Value

Salesforce.com Inc CRM

Fair Value: 253.00

Snowflake Inc Ordinary Shares - Class A SNOW

Last Close: 388.96

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

ServiceNow Inc NOW

Last Close: 533.25

Coupa Software Inc COUP Q 7 Dec 2020 22:16, UTC

Morningstar Historical Summary

Valuation as of 30 Nov 2020

Morningstar Analyst Historical/Forecast Summary as of 08 Sep 2020

Research Methodology for Valuing Companies

3. Uncertainty Around That Fair Value Estimate

Research Methodology for Valuing Companies

Analysts consider at least two scenarios in addition to

Our recommended margin of safety widens as our uncer-

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

For Recipients in Hong Kong: The Report is distributed

For recipients in India: This Investment Research is is-

*The Conflicts of Interest disclosure above also applies to

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