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What to Expect From Veeva Systems Inc. in 2018

By Keith Speights - Dec 4, 2017 at 8:08AM

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2018 could be a transitional year for Veeva -- but still a great one.

You can't really complain about Veeva Systems (VEEV 3.06%) stock performance in 2017. The cloud-based software provider's share price is up more than 45% year to date. However, this impressive gain was made in the first half of the year. Veeva stock has muddled along for the past few months.

With a new year just around the corner, investors might be wondering if modest gains will be the new normal or if there the stock's earlier sizzle will return. Here are four things to expect from Veeva in 2018.

2017 with red 8 pushing 7 down

Image source: Getty Images.

1. Growing but slowing subscription momentum for core products

There was much to like with Veeva's quarterly results, announced in August. Both revenue and earnings soared. On the other hand, the company's forecast for sales growth in the next quarter (for which Veeva reports results after the market closes on Tuesday) caused at least a little uneasiness. Veeva projected revenue growth of 17% -- much lower than what investors have become accustomed to.

Historically, most of Veeva's revenue has stemmed from its customer relationship management (CRM) systems. That's still the case. The company will continue to enjoy subscription growth for its core products in 2018. However, I suspect that the rate of growth next year will be a little slower than in the past -- just as Veeva forecast for its fiscal third quarter.

2. Faster growth for new applications

Veeva's newer applications have already begun to gain some traction. In the last quarter, the company reported nice new wins for its Vault quality management system. In addition, Veeva lined up five new early adopters for its Vault CTMS (clinical trial management system) product and its first two Vault EDC (electronic data capture) customers.

Those numbers for Vault CTMS and Vault EDC might not sound like much. However, the opportunities for these new products are huge. I suspect that Veeva will see much faster growth for its newer applications in 2018. As Peter Gassner, Veeva's CEO, said in August, getting the first few customers is pretty hard. With those initial customers in place, though, winning additional customers should get easier. 

3. Continued expansion beyond life sciences

For most of its history, Veeva Systems has strictly been a cloud software company for the life sciences industry. That's not the case anymore. The company landed a top five consumer packaged goods customer earlier this year. This customer has already expanded its relationship with Veeva.

That customer is the the primary one outside of life sciences that Veeva's management has highlighted, but the company has also won other deals beyond its core market. In the last quarter, Veeva was in discussions with several multibillion-dollar prospects that weren't in life sciences. My prediction is that 2018 will be an important year for Veeva's expansion beyond life sciences, with several big new contracts.

4. Another year of market-beating stock gains

Veeva Systems has beat the S&P 500 index in each of the last three years. Can investors expect yet another year of market-beating returns in 2018? I think so.

Sure, with shares trading at nearly 58 times expected earnings, Veeva stock is expensive. And, yes, there's a real possibility that revenue growth will slow somewhat. Still, I think the prospects for Veeva will remain appealing to investors. I wouldn't count on seeing the stock soar 40% or more, as it has so far in 2017 and as it did last year. However, I fully expect that Veeva will yet again top the market with double-digit percentage gains.

Beyond 2018

I'll go one step further and predict that the best days for Veeva Systems lie beyond 2018. My take is that once the company's new applications begin to take off, they'll really take off. And once Veeva wins a critical mass of customers outside life sciences, it will see huge success outside of its current core market. I don't think the inflection points will necessarily be reached in 2018, though.

I also think that Veeva could be a great long-term artificial intelligence (AI) stock. Granted, the company isn't doing a tremendous amount in AI right now. However, the key to AI is data -- and with its growing number of applications and customers, Veeva has more data in its niche market than anyone else. One analyst asked Peter Gassner on the last earnings conference call about the potential for the company to widen its moat over the next three to five years by applying AI to its data. Gassner said the company had plans to do just that.

In my view, 2018 could be something of a transitional year for Veeva Systems as it promotes its new applications and seeks to win more customers in other industries. I suspect, though, that the other end of that transition will be even better than what Veeva has now. And that's good news for investors.

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