Veeva Systems (VEEV 3.06%), which provides cloud solutions primarily to pharmaceutical companies, will be reporting earnings next week. While the stock has been a resounding success over the past two years -- tripling since February 2016 -- Wall Street's enthusiasm tempered significantly after the last report came out.
As a Veeva shareholder myself, there are three areas I'll be watching.
The headline numbers
Though I'm not too concerned with short-term movements or meeting three-month goals, I also want to understand what's going on if I check the market next week and see that Veeva is making big moves. While it's not make-or-break, knowing what the expectations are helps put the market's reaction in context.
Heading into the quarter, here's what Wall Street is expecting to hear about last quarter and what it believes results will look like when the current quarter is announced in early 2018.
|Q3 Expectations||Q4 Forecast|
|$172 million||$177 million|
Earnings per share (non-GAAP)
Last quarter, revenue came in stronger than expected. That's good news, but when the company didn't increase its annual forecast in lockstep, some took that as a sign that its trajectory was slowing.
Meeting third-quarter expectations may be important to short-term traders, but Veeva's fourth-quarter forecast will likely play an outsized role in the stock's direction immediately following the release.
How popular are the newer offerings?
One of my favorite things about Veeva is how sticky the company's subscriptions are. Veeva offers both customer relationship management (CRM) services, as well as what has become its core product: Vault.
Vault has a dizzying array of functions. The easy way to understand it is a single-site repository for storing all of the data and communications necessary to bring a potential drug from the idea stage all the way to market.
The devil, however, is in the details -- and it is the mastery of those details where Veeva excels. Once companies start storing their data on -- and training their employees in -- Vault, they would be loath to switch to a competing service. That's why uptake of new Vault offerings is so important -- it integrates customers evermore into Veeva's ecosystem, making them customers for life.
During the last conference call, three newer programs were specifically called out:
- Vault Clinical Trial Management Systems (CTMS) became available at the beginning of 2017. As of the last release, seven companies had signed on for the service, with two having gone live.
- Vault Electronic Data Capture (EDC) is an even more recent release. It had two customers sign on by the end of the second quarter.
- Vault Quality Management Systems (QMS) added 10 customers during the second quarter, which brought the total roster of customers to 30.
Even though slowed growth in any one of these products would be far from a deathblow, continued adoption would be a very positive sign for investors.
Progress outside of life sciences
One of the more exciting avenues for growth at Veeva has to do with its multiple futures. Vault was so popular with pharmaceutical companies that non-drug companies began asking for access to the solutions. These companies have tended to come from other heavily regulated industries -- like chemicals, consumer packaged goods, and manufacturing.
Earlier this year, Veeva announced that it would create a product dubbed Vault QualityOne for those who were interested. So far, details have been scant about uptake. All we really know is that one "Top Five" consumer packaged goods company and two "Top 30" chemical companies are using the product. Hopefully, we'll get more color on the call about uptake.
A final thought heading into earnings
Veeva has a fairly volatile stock when it comes to earnings. Not only is the company relatively young, but it has a pricey valuation -- 67 times trailing non-GAAP earnings and 40 times trailing free cash flow. The bigger picture to keep in mind is this: With new customers coming on board and existing customers adding more services, Veeva's high switching costs can produce lasting streams of revenue. As long as that narrative remains in place, I won't even think of selling my shares of Veeva.