Veeva Systems Inc. Fundamental Analysis

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Veeva Systems Inc

Last Updated: 6 Apr 2024

NYSE: VEEV

GICS Sector: Healthcare

Sub-Industry: Health Information Services

https://www.veeva.com

You can download a summary of Veeva Systems Incs' fundamental analysis in PDF here.

Management

Veeva Systems Inc Management

CEO: Peter Gassner

Tenure: 17.2 years

Veeva Systems Inc.’s management team has an average tenure of 6.5 years. It is considered experienced.

Business Overview

Veeva Systems Inc Business Overview

Veeva, a life sciences cloud solution provider, empowers companies to accelerate product development, optimize commercial operations, and ensure regulatory compliance through its integrated cloud software, data, and consulting services.

These life science companies include pharmaceutical, biotechnology, medical device companies, and contract research organizations.

Veeva offers two cloud-based product families, Veeva Development Cloud and Veeva Commercial Cloud, specifically designed to address the strategic needs of pharmaceutical, biotech, and medical device companies in R&D and commercial operations.

Veeva Development Cloud, built on Veeva Vault, offers suites for clinical, regulatory, quality, and safety functions in life sciences. It streamlines processes by unifying documents and data in a single system. These include:

Veeva Vault Clinical advances clinical trial execution by providing a complete and connected technology ecosystem.
Veeva Vault RIM is a suite of applications that provides fully integrated regulatory information management capabilities on a single cloud platform.
Veeva Vault Safety is a suite of applications that unifies systems and processes to enable proactive patient safety.
Veeva Vault Quality is the life science industry’s only unified suite of applications for managing quality content, processes, and training on a single cloud platform.

Veeva Vault RIM. Source: Veeva

Veeva Commercial Cloud equips life sciences companies with software and data solutions to streamline commercial operations. Its software offerings include:

Veeva CRM enables life sciences reps to manage healthcare interactions.
Veeva Vault PromoMats enables life sciences to streamline content creation, approval, and asset management in a single platform.
Veeva Vault Medical unifies medical content management and inquiry handling for life sciences.
Veeva Crossix allows pharmaceutical brands to optimize media spending through its analytics platform.

Its data offerings include:

Veeva OpenData provides access to comprehensive healthcare providers' customer reference data.
Veeva Link leverages automation and human expertise to deliver real-time insights.
Veeva Compass analyzes real-world US patient data for commercial uses.

They also have separate cloud solutions for the Consumer Products and Chemical (CP&C) Industries that address specific content and data management processes.

Furthermore, Veeva offers business consulting and professional services to help customers get the most out of Veeva solutions. They work alongside systems integrators like Accenture and Tata Consultancy Services to deliver services from project planning to ongoing support, ensuring customers leverage Veeva's capabilities for optimal business process transformation.

The company only operates in a segment but derives its revenue from two categories of services. Subscription fees for cloud-based software and data solutions, and professional services including implementation, configuration, and training.

Veeva Systems Inc. Reportable segments include Subscription Services, and Professional Services and Other.

Veeva Systems Inc Reportable Revenue for the Fiscal Year ended 31 Jan 2024. Source: Gurufocus

Veeva Systems Inc. revenue from these geographic areas of North America, Europe, Asia Pacific, and Middle East, Africa and Latin America.

Veeva Systems Inc Revenue Geographic Breakdown for the Fiscal Year ended 31 Jan 2024. Source: Gurufocus

Trends, Competition, and Strategy Overview

Veeva Systems Inc Trends, Competition, and Strategy Overview

Veeva strives to be the life sciences industry's leading technology partner, offering solutions across R&D and commercial functions.

Their commercial suite empowers smarter engagement with healthcare professionals and organizations, while R&D solutions streamline product development for efficiency and compliance. Veeva's cloud-based software for clinical research sites accelerates trials for the entire industry.

With a deep understanding of the industry, Veeva develops targeted solutions and adapts to regulatory changes quickly, ensuring ongoing customer success. This is necessary as the company operates in a competitive landscape.

Veeva competes for market share in the rapidly evolving environment. Competitors like IQVIA offer CRM solutions and data products that rival Veeva's Commercial Cloud applications.

For Veeva Vault, the competition is more fragmented, with companies like Dassault Systèmes and Oracle offering solutions for specific functionalities. Veeva also faces competition from generic cloud platforms like Salesforce and Amazon Web Services, which customers might choose for certain needs.

Beyond life sciences, Veeva competes with software giants like Microsoft and custom-built solutions for functionalities within Veeva Vault.

The company's business consulting and professional services offerings also compete with a range of professional services firms that have more experience, resources, and brand recognition.

These competitors boast larger intellectual property portfolios and broader partner networks. Veeva anticipates intensifying competition in the future, including from new entrants in the market.

Veeva Systems Inc Economic Moat

There are many ways to identify Veeva Systems Inc.’s economic moat, but I focus on these 5 sources. The rating is purely subjective and is based on my in-depth understanding of the company.

Veeva Systems Inc. has a wide economic moat. This is based on its intangible asset, cost advantage, efficient scale, network effect and switching cost.

Veeva Systems Inc. Economic Moat

Economic Moat: Wide

Forget generic software - Veeva has the life sciences industry on lock with its custom-built, cloud-based solutions.

Over 15 years of experience means they understand this market's unique needs better than anyone. Veeva does not just cater to every client, they tailor solutions, making them the undisputed leader.

This deep industry knowledge and ever-expanding toolbox create a powerful wide moat around Veeva's business. Intangible assets like expertise and high switching costs for clients make them tough to dethrone.

Veeva CRM is not your average customer relationship tool. It is a cloud-based system specifically designed for the fast-paced world of pharma and biotech sales forces. Unlike generic CRMs that struggle to keep up, Veeva stays agile.

Traditional client-server systems were slow and expensive to update, requiring compatibility checks for each new application. Veeva solves this by running on a central server, allowing for quick updates across the board. Clients benefit from always having the latest technology without the burden of hefty upfront costs or lengthy installations.

Veeva also creates switching costs for their clients. Once users get comfortable with Veeva's deeply integrated CRM, the thought of switching becomes a risky, expensive proposition.

Moving data can cause data loss, disrupt sales, and even delay product launches, which are critical in the fast-paced life science industry where drugs take years to develop, and patents have a limited lifespan.

Veeva further tightens its grip by offering additional applications that seamlessly complement its core CRM. These add-ons increase the value each customer brings to Veeva while keeping acquisition costs low.

In just a few years, the average customer went from using less than 10% of these add-ons to 50-60%. Veeva reels customers in with its core product, then expands their use with additional applications, some of which store vital drug data. The more Veeva becomes central to a company's operation, the harder it is to switch, locking customers into their ecosystem.

In a key industry spending survey, Veeva cracked the top 10 in 2012. Just five years later, they were number one. This was not just about their core CRM. Veeva's consistent investment in new areas and successful product launches fueled their rise. It is a testament to their ability to maintain growth.

This level of brand recognition and trust was not built overnight – it is the result of a long track record of success and continuous innovation.

Veeva Systems Inc Performance

Veeva Systems Inc Performance Checklist

My quick performance checklist:

Has Veeva Systems Inc.'s revenue consistently grown year over year for the past 5 years? Yes.

Is the net income consistently increasing year over year for the past 5 years? Yes.

Has the cash flow from operating activities shown consistent year-over-year growth for the past 5 years? Yes.

Has the free cash flow remained positive for the past 5 years? Yes.

Is the gross margin % consistent or growing over the past 5 years? Yes, it is consistent over the past 5 years.

Has the EPS shown growth over the past 5 years? Yes.

Veeva delivered a solid performance in fiscal year 2024, with total revenue surging by $209 million. A surge in subscription services, the company’s bread and butter, fueled this growth. Revenue from subscriptions climbed $169 million, with R&D solutions leading the charge at $119 million. Commercial solutions also chipped in a respectable $50 million.

Looking geographically, North America remains Veeva’s strongest market, contributing 58% of subscription revenue. However, Europe is catching up, accounting for 27%, with Asia Pacific showing steady growth at 15%. They mirrored this trend in professional services and other revenue streams, where North America holds a slight edge over Europe.

It is important to note that a recent change in customer contracts impacted the timing of revenue recognition in fiscal 2024. This means the revenue numbers might not fully reflect the underlying business strength. Additionally, some contracts have built-in annual price adjustments based on inflation, ensuring a steady revenue stream in the future.

Veeva Systems Inc.'s financial performance which includes its revenue, net income, operating cash flow, and FCF over the recent 5 years.

Veeva Systems Inc. Revenue, Net Income, Operating Cash Flow, and FCF (USD Million)

Has free cash flow per share increased over the last 5 years? Yes.

Veeva Systems Inc.'s free cash flow per share has been growing for the past 5 years.

Veeva Systems Inc FCF per Share

Management Effectiveness

Has Veeva Systems Inc.'s ROE stayed within or above the 12%-15% range year over year for the past 5 years? Yes.

Veeva Systems Inc Management Effectiveness

Veeva Systems Inc.'s ROE is above its industry average ROE.

Veeva Systems Inc. Return on Equity

Has the ROIC stayed within or above the 12%-15% range year over year for the past 5 years? Yes.

Veeva Systems Inc.'s ROIC is more than its WACC.

Veeva Systems Inc. Return on Invested Capital vs Weighted Average Cost of Capital

The trendline for the number of shares outstanding is increasing, which is something that an investor would not be pleased to see.

The number of Veeva Systems Inc. shares outstanding has been increasing over the past 5 years.

Veeva Systems Inc Shares Outstanding (Million Shares)

Veeva Systems Inc Financial Health

Veeva Systems Inc balance sheet which includes total equity, total debt, and cash & short-term investments.

Veeva Systems Inc Financial Health (USD Million)

Current Ratio: 5.6 (pass my requirement of >1.0)

Debt-to-EBITDA: 0.1 (pass my requirement of <3.0)

Interest Coverage: N/A (pass my requirement of >3.0)

Debt Servicing Ratio: N/A (pass my requirement of <30.0%)

Veeva Systems Inc Stock Performance

The chart below compares the cumulative total return on Veeva’s common stock with that of the S&P 500 Index and the S&P 1500 Application Software Index.

The chart assumes $100 was invested at the close of market on 31 Jan 2019 in the common stock of Veeva Systems Inc., the S&P 500 Index, and the S&P 1500 Application Software Index and assumes the reinvestment of any dividends.

Veeva Systems Inc Stock Performance

Stock Performance. Source: Veeva Systems Inc 10K

Veeva Systems Inc Intrinsic Valuation

Estimated intrinsic value: USD $171.53

Value is calculated using the discounted cash flow method (considering their cash and debt) and scenario planning.

Average free cash flow used: USD $810M

Projected growth rate: 10% - 15%

Beta: 0.8

Discount rate: 6.8%

Ideal margin of safety: 25% (Uncertainty: Mid)

Price range after the margin of safety: <USD $129.00

Date of calculation: 7 Mar 2024

Veeva Systems Inc Valuation

Veeva Systems Inc.'s valuation is based on the discounted cash flow method. A fundamental analysis by Ben, The Globetrotting Investor.

Veeva Systems Inc. Valuation

I use the past 5 years' free cash flow and apply a weighted average, giving more focus on the recent years. I then round the average to the nearest tens. In some instances, I use a more realistic number to represent the free cash flow.

The total debt and cash and short-term investments are the last quarter figures that are rounded to the nearest tens. In some instances, I use more realistic numbers to represent them.

Veeva Systems Inc. estimated fair value and its 52-week range.

Veeva Systems Inc. Intrinsic Valuation

Comparison of Veeva Systems Inc. price-earnings ratio against its five closest industry peers.

Veeva Systems Inc Relative Valuation

Veeva Systems Inc. Price-Earnings Ratio vs its Peers

Veeva Systems Inc's price-earnings ratio for the past 5 years and its 5-year average.

Veeva Systems Inc. Historical Price-Earnings Ratio

Additional Resources

I recommend reading The Five Rules for Successful Stock Investing as it greatly helps in my stock analysis. If you want a complete collection of recommended books, please visit here.

My Concerns

Veeva stores and transmits sensitive customer data, including patient information and trade secrets. A security breach here would be catastrophic, exposing this data and disrupting critical services.

Even if Veeva invests heavily in security, cyberattacks are evolving and becoming harder to predict, and one successful attack could mean lawsuits, fines, and a tarnished reputation.

The competition in life sciences software is fierce. Major players like IQVIA offer similar cloud-based solutions and data analytics. Even established giants like Oracle and Microsoft compete for specific functionalities.

On top of that, generic cloud platforms and niche players are all vying for a piece of the pie. New technologies and startups are expected to make things even more crowded. This pressure could lead to lower sales, margins, or market share if Veeva's offerings fall behind.

Veeva's revenue relies heavily on a small number of key customers. In the past three years, the top 10 customers alone contributed between 29% and 36% of total revenue. Losing a key customer, or even a reduction in their subscriptions, could be a major blow to Veeva's growth.

Mergers among existing customers are another concern – combined entities might cut subscriptions or renegotiate for lower prices. Even renewals from big clients may face increased scrutiny, potentially leading to lower revenue or smaller profit margins. This customer concentration is especially risky for Veeva's biggest accounts.

Finally, Veeva is all-in on life sciences. Any factors that adversely affect this industry could also adversely affect the company.

Veeva offers a lot to be excited about. The company boasts a wide economic moat, meaning its competitive edge is difficult to replicate. They have consistently delivered satisfactory performance, and their balance sheet is healthy.

However, there are reasons to be cautious. The number of outstanding shares, which dilutes the value of existing shares, is on the rise. This, coupled with the inherent uncertainty of any investment, means you will need a significant margin of safety. Ideally, you want to see Veeva's stock price at least 25% below what you believe is its intrinsic value to offset these potential drawbacks.

My Concerns

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Veeva Systems Inc. Fundamental Analysis