Overview of the Lock-Up Event
The lock-up period restricts major pre-IPO shareholders, such as venture capitalists, employees, managers, owners, and company founders from selling shares.
These restrictions typically last for 180 days and are put in place to maintain a fair and stable market for the new offering. Once restrictions are lifted, these shareholders (who typically own a large percentage of the total shares outstanding) can finally sell.
This increase in shares on the public market, in turn, often leads to a temporary decline in the stock price.
The 180-day lock-up period on Coupa Software (COUP) will expire on April 4, 2017.
Major pre-IPO shareholders hold an aggregate of 40.7M, which represents 84.6% of the total shares outstanding.
(Source: S-1/A)
Pre-IPO shareholders include seven outside investment firms and 11 executive officers and directors.
(Source: S-1/A)
We anticipate a price drop in the two weeks surrounding the lock-up period, which is in line with what we have seen around past lock-up period expirations. We have seen that negative returns around lock-up expirations are often largest for tech companies and when outside investors hold a large percentage of shares. Coupa Software meets both of these criteria.
Business Overview
Coupa Software Incorporated provides a cloud-based spend management platform to enterprises. Through its platform, companies are able to connect with suppliers globally and have greater visibility into and control over how money is spent throughout the company. Its platform offers procurement, invoicing, and expense management modules as well as supporting modules including: sourcing, analytics, contract management, supplier management, inventory management, and storefront. At the time of its IPO, Coupa Software had over 460 organizations and 2 million suppliers from around the world on its platform.
We previously covered COUP here and here.
The company platform can be used across industries, ranging from healthcare and pharmaceuticals, to manufacturing and technology. Current clients include Toyota (TM), NEC, Blackstone, BNP Paribas (BNPQF), Michaels (MIK), Colliers International (CIGI), Nvidia (NVDA), Reebok, and Adidas (ADDDF).
Management Team
Robert Bernshteyn serves as CEO and Chairman (since February 2009). He previously served as VP of Global Product Marketing & Management at SuccessFactors Inc., Director of Product Management at Siebel Systems, Inc., and Project Manager and Systems Integration Consultant of Accenture plc. Mr. Bernshteyn holds a B.S. in Information Systems from the State University of New York at Albany and an M.B.A. from Harvard Business School.
Todd Ford has served as CFO since May 2015. Prior to joining Coupa Software, Mr. Ford served as CFO of MobileIron (December 2013 - May 2015), co-CEO and COO of Canara Inc. (June 2012 - July 2013), and Managing Director of Broken Arrow Capital (July 2007 - Dec 2013). Mr. Ford is a Certified Public Accountant and holds a B.S. in Accounting from Santa Clara University.
Explosive IPO and Subsequent Early Market Performance
Coupa Software had a strong market debut. The company went public on 10.5.16, raising $133 million through its offer of 7.4 million shares. Shares were priced at $18 per share, the high-end of its expected price range of $16-18. The stock soared on the first day of trading, increasing 84.9%, but has since trended downward. Current stock price is $23.39 (market session 3.21).
Financial Highlights
Coupa Software reported fourth quarter financial results on 3.13. The following day, its share price fell 11% on the news. Despite increased revenue and earnings per share compared to the same quarter the prior year, analysts appeared to be reacting negatively to Coupa Software's slowing revenue growth and continued net loss.
Coupa also provided revenue guidance for Q12017 and FY2017, which was above analysts' estimates, but estimated net losses both for Q12017 and FY2017. Table below highlights main results.
Conclusion: Sell
Less than stellar quarterly results and the significant price dip that followed, may motivate pre-IPO shareholders to liquidate their position once restrictions are lifted on April 4.
Coupa Software is up significantly from its IPO price, but has been trending downward over the last two months.
The upcoming lock-up expiration may result in a significant increase in the number of available shares on the market and add additional downward pressure on the stock.
We, therefore, recommend investors consider selling their position before pre-IPO shareholders have the opportunity to bail out on April 4.
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