Veeva: A Profitable Name In The Tech Wreck

Veeva shares have been resilient in the sell-off and present a hedged buying opportunity now in tech.

A focus on profitability and a historical trend of showing this profitability will help Veeva recover.

A sector focus on healthcare will present opportunities as all types of investors start to understand and focus on the sector.

Recent financial performance show strong growth even amidst a difficult selling environment.

Thesis

Veeva (VEEV) shares have traded down slightly YTD showing the resilience of the stock. In its most recent earnings call in early March 2020, management highlighted a strong financial picture that would normally be accompanied with a rally.

Fundamentals and the stock price are mismatched which presents a buying opportunity. Further, I believe the stock’s YTD performance also serves as a hint that the business can be a hedge to other tech names (similar to DOCU or ZM, at a more reasonable valuation).

Disciplined, Profitable Financials

Looking at the Q4 recent financials, Veeva outperformed on the top and bottom line numbers. This is due to strong execution, market position in a niche segment, and stickiness once a customer switches to Veeva CRM. I believe these are fundamental strategic moves with large moats that won’t change with the recent coronavirus.

Veeva’s revenues for 4Q20 grew 34% over the year to $311.51 million, ahead of the Street’s forecast of $298 million. Net income fell 7% over the year to $66.2 million. On an adjusted basis, net income grew 20% to $85.5 million or $0.54 per share, compared to $0.45 a year ago, and ahead of the market’s estimated $0.52.

Source: PaaS on SaaS

Here is a view of historical performance.

Source: Unhedged

Customer Base

Veeva serves life science companies and offers them a system of record to help companies bring drugs to market faster, sell more effectively by targeting leads, and maintain compliance. This is sticky software.

In 2019, the company had 861 customers, and generated $1.1 billion of revenue. 81% of revenue came from subscriptions. It had a profit margin of 27%, proving that it can grow at 30%+ YoY and also maintain profitability. This is a rare feat in technology.

Source: 10K

Recent Performance

In its 10K filing on March 30, 2020, Veeva mentioned an impressive growth through Salesforce (CRM). It stated that the seat count grew 10% YoY, up from 6% in 2019. So Veeva may in fact be benefiting from the recent coronavirus incident with its customer base in healthcare (pharma) realizing the importance of having CRM systems in place.

In the same document, management carefully noted that the subscription-heavy business may not see a downtrend in revenue at all

“Due to our subscription-based business model, the effect of the COVID-19 outbreak, and any impact to our sales efforts, may not be fully reflected in our results of operations until future periods, if at all.”

Combined with recent acquisitions of Crossix, a compliant provider of patient data, and Physician’s Bureau, a provider of speakers bureau services for healthcare professionals, I believe Veeva is building a formidable business around the life science industry that will be resilient in this challenging economic environment.

Source: 10K

Valuation

One major challenge to this argument is valuation. It still trades ~20x EV/LTM Sales. Because the stock has not sold off as much, this is more of an offensive play and long-term belief in the business rather than bargain find. Still, I firmly believe it is a buy and hold at this point with ongoing dynamics and management updates.

Source: Koyfin