Veeva Systems (VEEV +0.68%) and Salesforce (CRM +0.41%) are two closely linked companies in the cloud-based CRM (customer relationship management) space. Salesforce, which was founded 21 years ago, is the world's largest CRM company. In 2007, Peter Gassner, Salesforce's former senior VP of technology, co-founded Veeva to develop dedicated CRM solutions for pharmaceutical and life science companies.
Veeva's CRM platform runs on Salesforce's app development platform, and its services are integrated into Salesforce's Marketing and Service Clouds. Salesforce also offers CRM services to healthcare companies, but it doesn't directly compete against Veeva's core cloud services, which help life science companies track customer relationships, industry regulations, clinical trials, prescribing habits, and other data.
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Salesforce enjoys a first mover's advantage in the broader CRM market, which likely benefited from an accelerated shift toward remote collaboration and customer service solutions during the pandemic. Veeva also enjoys a first mover's advantage in its life sciences market, and demand for its services also likely rose as top customers like GSK, AstraZeneca, and Novartis developed new drugs.
Those strengths helped both stocks outperform the S&P 500 this year, as Veeva rallied over 40% and Salesforce rose more than 10%. But looking ahead, will Veeva continue outperforming Salesforce throughout the rest of 2020?
Which company is growing faster?
Veeva and Salesforce both generated double-digit revenue growth over the past year, and both companies posted accelerating growth in their latest quarters, which ended on January 30.
|
Revenue Growth (YOY) |
Q4 2019 |
Q1 2020 |
Q2 2020 |
Q3 2020 |
Q4 2020 |
|---|---|---|---|---|---|
|
Veeva |
25% |
25% |
27% |
25% |
34% |
|
Salesforce |
26% |
24% |
22% |
33% |
35% |
YOY = Year-over-year. Source: Company quarterly reports.
Veeva expects its revenue to rise 34% annually in the first quarter and 27% for the full year. During last quarter's conference call, Gassner told analysts that the company hadn't experienced any project slowdowns or cancellations due to COVID-19 yet. The pandemic could be boosting demand for its cloud services, but Gassner warned that any long-term predictions about the COVID-19 situation "could be inaccurate."
Salesforce expects its revenue to rise 30%-31% annually in the first quarter and 23% for the full year. During its latest conference call, co-CEO Keith Block claimed COVID-19 was "not affecting" Salesforce yet, while co-CEO Marc Benioff noted the disruptions were mainly limited to its airline, hospitality, and Chinese customers. Salesforce's strong guidance suggests its gains in other markets will offset those setbacks.
Which company is more profitable?
Veeva and Salesforce were both profitable by GAAP measures last year. Veeva's net income rose 31% to $301 million on revenue of $1.1 billion last year. Its non-GAAP EPS rose 34% to $2.19, and Veeva anticipates another 14% earnings growth this year.
Veeva's earnings growth indicates it has pricing power in the life sciences market. It expects its gross margin to be slightly weighed down in 2021 by its recent acquisitions of events management platform Physicians World and patient analytics platform Crossix, but those purchases will strengthen its ecosystem.
Salesforce's net income plunged 89% to $126 million on revenue of $17.1 billion last year. But its non-GAAP EPS, which excludes the impact of stock-based compensation, acquisitions, and other one-time charges, rose 9% to $2.99 -- and it expects another 6% earnings growth this year.
Salesforce's earnings growth indicates it still enjoys a wide moat against rivals like SAP, Oracle, Adobe, and Microsoft in the CRM market. Nonetheless, Salesforce still faces more direct competition than Veeva, which lacks meaningful competitors in its niche market.
Premium valuations for premium stocks
Neither stock is cheap relative to its growth. At $200, Veeva's stock trades at 80 times this year's earnings. At $180, Salesforce trades at 57 times this year's earnings. However, Veeva and Salesforce's resilience and growth throughout the crisis could justify their premium valuations.
Veeva and Salesforce both remain sound long-term investments on the cloud CRM market. But if I had to choose one over the other, I'd stick with Veeva, since it generates stronger GAAP profits with a narrower focus and wider moat.
