Veeva Systems' (VEEV +0.14%) stock price surged 20% on June 1 after the cloud-based software company posted its latest earnings report. For the first quarter of fiscal 2024, which ended on April 30, its revenue rose 4% year over year to $526 million and exceeded analysts' estimates by $9 million. Its adjusted net income dropped 7% to $148 million, or $0.91 per share, which also cleared the consensus forecast by $0.11.
Veeva's headline numbers surpassed Wall Street's conservative expectations, but its stock remains more than 40% below its all-time high from August 2021. Could it bounce back toward that level over the next 12 months?
Image source: Getty Images.
Veeva's growth is still cooling off
Veeva's cloud-based customer relationship management (CRM) platform serves more than 1,200 life science companies. It also helps its clients store and analyze their data, while keeping track of the latest clinical trials and industry regulations.
Veeva established a first-mover advantage in its niche, it doesn't face any meaningful competitors, and its top customers include pharmaceutical giants like Pfizer and Johnson & Johnson. That market dominance gives Veeva plenty of pricing power, and the company profits from the growing need for digital upgrades across the life sciences sector.
Veeva's revenue rose 28% in fiscal 2020 (which ended in January 2020), 33% in fiscal 2021, and 26% in fiscal 2022. But in fiscal 2023, its revenue only grew 16% to $2.16 billion as macro headwinds disrupted the life sciences market. Many of its clients downsized their sales teams, scrutinized their spending, and signed larger R&D deals that took longer to book as revenue. All those headwinds weighed down Veeva's revenue, operating margins, and earnings over the past year.
|
Metric |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
Revenue Growth (YOY) |
16% |
17% |
16% |
16% |
4% |
|
Adjusted Operating Margin |
39.5% |
37.8% |
39.7% |
37.2% |
29.8% |
|
Adjusted EPS Growth (YOY) |
9% |
10% |
16% |
28% |
(8%) |
Data source: Veeva. YOY = Year over year.
That slowdown blew up the notion that Veeva was an evergreen growth stock, and many bulls rushed for the exits. Veeva's frothy valuation also made it an easy target for the bears: At its all-time high of $341 per share, its enterprise value reached $50 billion -- a whopping 27 times the revenue it would actually generate in fiscal 2022.
It might have passed its cyclical trough
Veeva expects its revenue to rise 9% year over year in the second quarter and 9%-10% for the full year. On the bottom line, it expects its adjusted EPS to grow 9%-10% year over year in the second quarter and 23% in fiscal 2024 -- which is significantly higher than its prior full-year forecast for 16% earnings growth.
That outlook suggests the first quarter of fiscal 2024 marked the bottom of Veeva's cyclical downturn. During the conference call, CEO Peter Gassner said the "macroeconomic environment was stable" and the company reaped the benefits from its "strong execution" across the R&D and commercial markets. Gassner also said Veeva's business "continues to move forward" even as the macro headwinds rattle the broader markets.
Veeva also reiterated its guidance for generating at least $2.8 billion in revenue in fiscal 2025, which implies its revenue will grow about 18% from fiscal 2024. That reacceleration could finally end its cyclical downturn and bring back the bulls.
NYSE: VEEV
Key Data Points
But where will Veeva's stock be in a year?
At $200 per share, Veeva still isn't cheap at 44 times its adjusted EPS forecast for fiscal 2024. By comparison, the CRM giant Salesforce expects to grow its adjusted EPS by 41%-42% this fiscal year, but it trades at less than 30 times that estimate.
Veeva's enterprise value has cooled off to $23 billion, but that's still 10 times the revenue it expects to generate in fiscal 2024. Salesforce, which also expects to grow its revenue by about 10% this fiscal year, trades at just 6 times that forecast.
Therefore, I believe Veeva's premium valuations could limit its upside potential until its revenue growth meaningfully accelerates toward its fiscal 2025 goals again. Its stock might hold steady or even rise slightly over the next 12 months, but there's also a strong chance that it will underperform Salesforce and the broader tech sector.
