Veeva Systems (VEEV)

Healthcare software provider Veeva Systems (NASDAQ:VEEV) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 16.7% year on year to $759 million. Guidance for next quarter’s revenue was optimistic at $767.5 million at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $1.97 per share was 13% above analysts’ consensus estimates.

Company Overview

Built on top of Salesforce as one of the first vertical-focused cloud platforms, Veeva (NYSE:VEEV) provides data and customer relationship management (CRM) software for organizations in 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.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Veeva Systems grew its sales at a 14.1% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Veeva Systems.

This quarter, Veeva Systems reported year-on-year revenue growth of 16.7%, and its $759 million of revenue exceeded Wall Street’s estimates by 4.2%. Company management is currently guiding for a 13.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 9.7% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Veeva Systems’s billings punched in at $723.6 million in Q1, and over the last four quarters, its growth was solid as it averaged 15.2% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Veeva Systems is extremely efficient at acquiring new customers, and its CAC payback period checked in at 15.3 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Veeva Systems’s gross margin is good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 75.5% gross margin over the last year. That means for every $100 in revenue, roughly $75.50 was left to spend on selling, marketing, and R&D.

In Q1, Veeva Systems produced a 77.1% gross profit margin, marking a 3.8 percentage point increase from 73.3% in the same quarter last year. Veeva Systems’s full-year margin has also been trending up over the past 12 months, increasing by 3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Veeva Systems has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 27%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Veeva Systems’s operating margin rose by 5.9 percentage points over the last year, as its sales growth gave it operating leverage.

In Q1, Veeva Systems generated an operating profit margin of 30.8%, up 6.9 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Veeva Systems has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 41.5% over the last year.

Veeva Systems’s free cash flow clocked in at $871.2 million in Q1, equivalent to a 115% margin. The company’s cash profitability regressed as it was 1.3 percentage points lower than in the same quarter last year, but it’s still above its one-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.

Over the next year, analysts predict Veeva Systems’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 41.5% for the last 12 months will decrease to 39.8%.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Veeva Systems is a profitable, well-capitalized company with $6.07 billion of cash and $77.23 million of debt on its balance sheet. This $5.99 billion net cash position is 13.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

This was a beat and raise quarter, with revenue and EPS exceeding estimates. Also, we were impressed by Veeva Systems’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 11.5% to $261.99 immediately following the results.

Updated: June 19, 2025 at 10:15 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Veeva Systems, you should also grasp the company’s longer-term business quality and valuation.

There are a lot of things to like about Veeva Systems. Although its revenue growth was uninspiring over the last three years and analysts expect growth to slow over the next 12 months, its bountiful generation of free cash flow empowers it to invest in growth initiatives. And while its forecasted free cash flow margin suggests the company will ramp up its investments next year, its impressive operating margins show it has a highly efficient business model.

Veeva Systems’s price-to-sales ratio based on the next 12 months is 14.7x. This valuation tells us that a lot of optimism is priced in. This is a good one to add to your watchlist - there are better opportunities elsewhere at the moment.

Wall Street analysts have a consensus one-year price target of $291.65 on the company (compared to the current share price of $281.43).