Please ensure Javascript is enabled for purposes of website accessibility

Better Buy: Shopify Inc. vs. Veeva Systems

By Leo Sun - Oct 5, 2017 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Which high-growth cloud service provider is a better long-term investment?

Shopify (SHOP 0.54%) and Veeva Systems (VEEV 3.06%) are two cloud-based companies that have made investors a lot of money. Shopify surged nearly 180% since the beginning of the year, while Veeva rallied 40%.

However, Shopify and Veeva are very different companies that serve completely different markets. Let's examine these two high-flying cloud service stocks to see which is the better buy at these elevated prices.

A graphical representation of cloud computing.

Image source: Pixabay.

What do Shopify and Veeva do?

Shopify is a one-stop shop for retailers that want to digitize their businesses. Its platform helps businesses design, set up, and run online stores. It also helps them process orders, payments, and shipments, maintain customer relationships, and leverage analytics to evaluate their overall business performance.

Veeva's platform providers customer relationship management (CRM) services for healthcare companies. Its core products include the Veeva Vault, which tracks prescribing habits, clinical trials, and industry regulations; and the Veeva Commercial Cloud, which helps drug companies maintain customer relationships.

How fast are Shopify and Veeva growing?

Demand for Shopify's services has been soaring, fueled by the decline of brick-and-mortar stores and the growth of digital channels. Even Amazon (AMZN 3.15%), which previously competed against Shopify, now integrates Shopify's platform directly into its online marketplace.

That's why Shopify's revenue rose 95% in 2015 and 90% in 2016. Wall Street anticipates 67% growth this year, which represents a slowdown but still reflects robust demand for its e-commerce services.

Veeva's top line growth has been lifted by elevated competition among drugmakers, rapidly changing industry regulations, and a constantly updated list of clinical trials. Leading drugmakers like Pfizer and Novartis pay Veeva to access that data and maintain customer relationships on its constantly updated cloud platform.

Veeva's revenue rose 31% annually in fiscal 2016 and accelerated to 33% growth in 2017. However, analysts expect that momentum to slightly wane with 24% growth this year.

Which company is more profitable?

Many cloud-based companies excel at growing revenues but struggle to generate a profit. That's mainly due to the high cost of securing new customers and supporting that growth with new services. Shopify hasn't ever reported a full-year profit, but analysts expect its losses to narrow this year before it achieves profitability in fiscal 2018.

A shopping cart icon on a smartphone.

Image source: Getty Images.

Shopify's expenses remain high due to some big investments in the expansion of its ecosystem -- which include Shopify Pay, which lets vendors store customers' payment information, a point-of-sale card reader, a wholesale channel for buyers, and new APIs that let developers integrate Shopify's platform into their apps.

Veeva has done a better job at keeping its expenses under control, and it's profitable by both GAAP and non-GAAP measures. Its non-GAAP net income earnings rose 43% last year, and analysts anticipate 38% growth this year.

Veeva has also invested in the growth of its ecosystem with new services for Veeva Vault and Cloud, but it hasn't expanded its services as aggressively as Shopify, since its big customers likely prioritize consistent performance over the introduction of new features.

Which stock is fundamentally cheaper?

Shopify doesn't have a P/E due to its lack of consistent profits, but its price-to-sales ratio of 21 is much higher than the industry average of 6 for application software makers.

Veeva trades at 72 times earnings, which seems lofty but is actually lower than the industry average of 101 for health information services providers. However, its P/S ratio of 14 is much higher than the industry average of 5 -- indicating that a lot of optimism is already baked in.

So which stock is a better buy?

I like both stocks as growth plays, but I believe that Veeva's profitability makes it a better buy than Shopify. Veeva's stock price still looks lofty relative to those profits, but it should have more downside protection than Shopify, which could quickly crumble during a market correction.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Veeva Systems Inc. Stock Quote
Veeva Systems Inc.
VEEV
$204.11 (3.06%) $6.07
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$31.41 (0.54%) $0.17
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$109.56 (3.15%) $3.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.