Veeva Systems' (VEEV 0.17%) stock price closed at an all-time high of $341 last August. But over the past six months, the broad sell-off across the tech sector brought the high-flying stock back to the $160s.
Does that pullback represent a good buying opportunity for long-term investors? Let's reevaluate Veeva's business model, the bearish complaints, and the bullish arguments to find out.
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What does Veeva Systems do?
Veeva provides cloud-based customer relationship management (CRM), data storage, and analytics services for life science companies. Its co-founder and CEO Peter Gassner was previously the senior vice president of technology at Salesforce (CRM -1.59%), the world's largest cloud-based CRM company. Veeva's CRM services were built on Salesforce's platform.
At the end of fiscal 2022 (which ended this January), Veeva served 1,205 customers globally, representing 21% growth from a year earlier. Its growing list of customers includes pharmaceutical giants like GlaxoSmithKline, Pfizer, Johnson & Johnson, and Moderna.
Veeva's services help those companies track their customer relationships, analyze that data, and keep track of the latest clinical trials and regulations. It doesn't face any meaningful competitors in this growing niche market.
What the bears will tell you about Veeva
The bears dislike Veeva because it faces a near-term slowdown, its long-term targets are uninspiring, and its valuation is a bit high.
Veeva's revenue rose 26% to $1.85 billion in fiscal 2022. Its adjusted operating margin expanded by a percentage point to 41%, and its adjusted earnings per share (EPS) increased by 27%. But in fiscal 2023, it expects its revenue and adjusted EPS to only grow 17% and 8%, respectively. Those would represent its slowest growth rates since its IPO in 2013.
Veeva blames that slowdown on the emergence of several larger R&D deals in its pipeline, which will take longer to realize as revenue; the downsizing of sales teams across the life sciences industry, which will curb the market's near-term demand for CRM services; and an unfavorable macro environment causing its clients to postpone their larger projects.
Back in 2019, Veeva said it would generate more than $3 billion in annual revenue by calendar 2025 (which includes most of fiscal 2026). Gassner said Veeva "continued to track ahead" of that target during its latest conference call, but it would only need to grow its revenue at a compound annual growth rate (CAGR) of 13% from fiscal 2022 to 2026 to hit $3 billion -- which might seem uninspiring to growth-oriented investors.
Lastly, Veeva's stock still trades at 38 times forward earnings and 12 times this year's sales. Those valuations are a bit high relative to its near-term growth rates, and investors can easily find better values in this market. For example, Salesforce -- which expects to grow its annual revenue at a CAGR of 17% between fiscal 2022 and 2026 to more than $50 billion --trades at 34 times forward earnings and five times this year's sales.
What the bulls will tell you about Veeva
The bulls believe Veeva's near-term slowdown is temporary, its business model is resilient, and it has plenty of room to grow.
Last quarter, Veeva told investors that its revenue recognition from large R&D deals would result in a slowdown in the first half of fiscal 2022 followed by a stabilization in the second half. Its clients should also gradually expand their sales teams again to support new product launches.
Based on those assumptions, analysts expect Veeva's revenue and adjusted earnings to grow 17% and 15%, respectively, in fiscal 2023. We should take those estimates with a grain of salt, but they indicate Veeva's growth won't grind to a halt anytime soon.
Veeva's ecosystem is also sticky. It ended fiscal 2022 with an impressive revenue retention rate of 119% for its subscription services, and that rate should remain high as its clients increasingly rely on its services to stay competitive in the crowded life sciences market. That stickiness gives Veeva plenty of pricing power and room to launch new add-on services.
Veeva is still a good long-term investment
I personally own some shares of Veeva, and I think it's still a good long-term investment. However, I also think its slowing near-term growth and premium valuation will limit its upside potential this year.
Therefore, investors shouldn't expect Veeva to soar back toward its all-time highs anytime soon. Other beaten-down tech stocks -- like Salesforce -- might represent better buying opportunities right now.
