Veeva Systems' (VEEV -0.58%) stock price soared 15% on June 2 after the cloud-based software company posted its first-quarter earnings report. Its revenue rose 16% year over year to $505.1 million and beat analysts' estimates by $9.2 million. Its adjusted net income grew 9% to $159.8 million, or $0.99 per share, which also topped estimates by seven cents.
Those growth rates look decent, but is Veeva's post-earnings pop sustainable? Let's review its growth rates and valuations to find out.
How fast was Veeva growing?
Veeva provides cloud-based customer relationship management (CRM), data storage, and analytics services to life science companies. At the end of fiscal 2022 (which ended this January), it served over 1,200 customers -- including pharmaceutical giants like Pfizer, Johnson & Johnson, and Moderna.
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Veeva's services enable those companies to optimize their sales teams, track customer relationships, analyze their data, and keep track of the latest clinical trials and regulations. It doesn't face any meaningful competitors in this niche market, and intense competition across the life sciences industry keeps Veeva's customers tightly tethered to its services.
That evergreen business model enabled Veeva to grow its annual revenues at a compound annual growth rate (CAGR) of 29% between fiscal 2015 and fiscal 2022. Its adjusted operating margin also expanded from 27.6% in fiscal 2015 to 41% in fiscal 2022.
But can it maintain that momentum?
However, Veeva expects its revenue to only grow 16% to 17% year over year in the second quarter, and to increase 17% to 18% for the full year -- which would represent its slowest annual revenue growth since its IPO in 2013. It also expects its adjusted operating margin to slip to 38% for the full year.
Veeva expects its growth to decelerate this year as it deals with several larger research and development deals in its pipeline, which take longer to recognize as revenue; the downsizing of sales teams across the life sciences industry, which will reduce its near-term sales of CRM services; and the effect of persistent macroeconomic headwinds on large-scale life science projects.
But compared to its initial guidance in March, Veeva slightly raised its full-year revenue guidance by $5 million and its adjusted operating income guidance by $10 million. It also boosted its full-year adjusted earnings per share (EPS) guidance from 8% growth to 12% growth.
During the first-quarter conference call, Veeva's CFO Brent Bowman attributed its improved full-year guidance to its expectations for a "slight revenue acceleration in the back half of the year." It maintained that brighter outlook even though it expects currency headwinds to reduce its full-year revenue by $20 million and its full-year billings by $30 million.
Is Veeva undervalued relative to its growth potential?
Veeva didn't provide any guidance beyond the end of the year, but it's repeatedly predicted that its annual revenue would exceed $3 billion by calendar 2025 (which includes most of fiscal 2026).
Yet that target is fairly conservative, since it would only require Veeva to grow its annual revenue at a CAGR of at least 13% between fiscal 2022 and 2026. Analysts currently expect Veeva's revenue to rise about 17% in both fiscal 2023 and 2024 as it navigates this more challenging market.
Veeva's stock has lost about a third of its value over the past 12 months, but it still isn't cheap at nearly 40 times forward earnings and 16 times this year's sales. Salesforce (CRM -0.39%), Veeva's longtime partner and the world's largest cloud-based CRM company, is growing at a faster rate and trades at 34 times forward earnings and six times this year's sales.
Therefore, Veeva's business still looks healthy, but its stock isn't a screaming buy right now. Investors who are looking for a well-rounded cloud CRM play should probably stick with Salesforce instead.
