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Veeva Systems (NYSE:VEEV) Beats Q2 Sales Targets But Stock Drops


Full Report / September 01, 2021
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Healthcare software provider Veeva Systems (NASDAQ:VEEV) announced better-than-expected results in the Q2 FY2022 quarter, with revenue up 28.8% year on year to $455.5 million. Veeva Systems made a GAAP profit of $108.8 million, improving on its profit of $93.5 million, in the same quarter last year.

Veeva Systems (VEEV) Q2 FY2022 Highlights:

  • Revenue: $455.5 million vs analyst estimates of $450.9 million (1.03% beat)
  • EPS (non-GAAP): $0.94 vs analyst estimates of $0.86 (9.03% beat)
  • Revenue guidance for Q3 2022 is $465 million at the midpoint, above analyst estimates of $459.7 million
  • The company reconfirmed revenue guidance for the full year, at $1.83 billion at the midpoint
  • Free cash flow of $118.9 million, down 75.1% from previous quarter
  • Customers: 1,100, up from 1,052 in previous quarter
  • Gross Margin (GAAP): 73.2%, in line with previous quarter

Founded in 2007, Veeva provides data and customer relationship management (CRM) software for organizations in the life sciences industry.

It was built as a cloud software platform that enables the sales reps of pharmaceutical companies to manage interactions with healthcare professionals. The platform took off around the time the iPad was launched as the portable device made it easier for pharmaceutical salespeople to keep track of doctor visits and other clinical information.

Veeva was founded by former Salesforce executive Peter Gassner, who saw the opportunity to develop a CRM solution for the healthcare space. The company has since expanded its offerings to meet growing trends in the healthcare sector. While the CRM product remains the biggest revenue driver, it also offers Veeva Vault, a data and content management software for managing drug development and clinical trials. Today, Veeva is investing in modern cloud-based products like Nitro, which is a data warehouse for the life sciences industry.

The coronavirus pandemic has underscored the importance of high-quality health infrastructure in times of crisis. Coupled with intense competition between drugmakers and the growing volume of data in the health care sector, demand for data management solutions in the healthcare space is expected to remain strong in the years ahead.

Veeva is competing with companies like IQVIA, Dassault Systèmes, OpenText Corporation (NASDAQ: OTEX), and Oracle Corporation (NYSE:ORCL).

Sales Growth

As you can see below, Veeva Systems's revenue growth has been strong over the last year, growing from quarterly revenue of $353.6 million, to $455.5 million.

Veeva Systems Total Revenue

This quarter, Veeva Systems's quarterly revenue was once again up a very solid 28.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $22 million in Q2, compared to $36.8 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 19.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that Veeva Systems reported 1,100 customers at the end of the quarter, an increase of 48 on last quarter. That is a bit slower customer growth than last quarter but still in line with what we are used to seeing lately, suggesting that the company still has decent sales momentum.

Veeva Systems Customers

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Veeva Systems's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 73.2% in Q2.

Veeva Systems Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the average of what we typically see in SaaS businesses, but it is good to see that the gross margin is staying stable which indicates that Veeva Systems is doing a good job controlling costs and is not under a pressure from competition to lower prices.

Key Takeaways from Veeva Systems's Q2 Results

With a market capitalization of $50.7 billion, more than $2.26 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see Veeva Systems deliver strong revenue growth this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, there was a slight slowdown in customer growth. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is down -7.27% on the results and currently trades at $310 per share.

Is Now The Time?

When considering Veeva Systems, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Veeva Systems is a good business. We would expect growth rates to moderate from here, but its revenue growth has been strong, over the last two years. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its very efficient customer acquisition hints at the potential for strong profitability.

The market is certainly expecting long term growth from Veeva Systems given its price to sales ratio based on the next twelve months is 27.4. There is definitely a lot of things to like about Veeva Systems and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $333.6 per share right before these results, implying that they saw upside in buying Veeva Systems even in the short term.

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