Veeva Systems Inc (NYSE:VEEV) has been on a tremendous run over the past five years, more than tripling its annual revenues. At the end of last year, management realized it would reach its $1 billion annual revenue goal ahead of schedule, so it upped the bar again. A new $3 billion revenue target for 2025 was set at its analyst meeting in October 2019. But this was before anyone had heard of COVID-19.
The stock has climbed almost 70% since then, and management remains confident in its long-term plans. Let's take a look at the business of this life sciences industry software specialist and how its plans are shaping up given our new normal.
The business of a life sciences software specialist
Veeva has two core software products: Commercial Cloud for customer relationship management (CRM), and Veeva Vault, which helps manage the life cycle of a product from development through launch and support. Its CRM software was launched in 2007, the year the company was founded, and made up 49% of its revenues last year. Vault was launched in 2011 and has been growing faster due to its broader application. It makes up the remaining portion of Veeva's top line.
Both of these products cater to the highly regulated life sciences industry and help companies move business processes into the digital space. Recently, Veeva has extended Vault's application into three other regulated industry verticals -- chemicals, consumer goods, and cosmetics. These new industries will help power Vault's growth to make up two-thirds of the $3 billion annual revenue goal by 2025. Commercial cloud is expected to account for the remaining $1 billion.
In early March, as the coronavirus was starting to spread around the world, CEO Peter Gassner was asked in an interview whether the pandemic would affect Veeva's $3 billion goal. He replied: "We've seen some delays in some projects, but nothing that would materially affect our financials." But his view has since changed, for the better.
Confidence despite the coronavirus disruption
In May, Veeva posted stronger-than-expected revenue for its first fiscal quarter, but tempered its full-year outlook. Quarterly revenues of $337 million beat its top-end guidance by $9 million, a solid 38% year-over-year growth. But given the uncertainties in the market, it lowered the top end of its full-year outlook by $10 million to $1.395 million. Many companies have stopped providing full-year forecasts due to the pandemic, but the fact that Veeva management didn't shows that they have a cautious but confident view of the remainder of the year.
Gassner provided some insights on the earnings call into why he was optimistic:
This crisis has caused significant disruption, but it has also promoted innovation throughout the industry and of Veeva, which over time will be beneficial for life sciences and for Veeva. I am more confident than ever in our long-term opportunity and our ability to achieve our $3 billion revenue target in 2025.
He went on to say that the life sciences industry is less financially affected by what's happening and indicated that many of the industry processes are becoming virtual. Given that, it's not surprising that the company has continued to announce significant product enhancements this year.
Pressing on the innovation accelerator
For the company's commercial cloud, there have been two enhancements announced. Veeva Link harnesses the power of artificial intelligence insights to help manage key accounts. Veeva's also extending its video chat solution, Engage, to integrate with Microsoft Teams and Zoom products, giving sales teams more flexibility in how to reach out to clients.
Vault added key capabilities to help facilitate clinical trials. MyVeeva helps guide patients through the steps of a clinical trial, and Veeva Site Connect provides a compliant common repository to share documents with all parties involved in a clinical trial. Vault also added a module to manage post-market surveillance for medical devices, enabling companies to digitally track product usage and complaints.
These enhancements show that the company isn't resting on its laurels and is continuing to innovate, even though its employees are now working remotely due to the coronavirus.
The takeaway for investors
The stock has been on a tremendous run this year, pushing its price-to-sales ratio into the low 30s from the low 20s just a year ago. Many may view its shares as too expensive, but with its leadership position in the life sciences industry and the tailwinds of digital transformation, Veeva is worth the price. In the most recent conference call, Gassner shared his perspective on how the coronavirus has shaping the industry mindset:
And with COVID, with lockdown, the industry was now forced to accelerate that [digital adoption]. And I think we saw, probably two or three years of digital transformation happening within just a couple of months. But what's been remarkable is I have never seen in my career, this shift over literally three months, the industry moving that fast to turn on digital channels.
With these tailwinds, this tech stock looks like a winner over the next five years as it continues to make progress toward tripling its revenue by 2025.