When is a good thing no longer a good thing? Veeva Systems (VEEV 1.18%) has nearly tripled revenues and earnings over the past five years, but the stock's getting beaten down so badly that investors are starting to wonder if it's still a smart buy.
From the time it went public in 2013 and into 2021, Veeva Systems was a top-performing cloud stock. It's down around 50% from the peak it reached last year, and its earnings report for its fiscal quarter ended July 31 didn't inspire a rally. In fact, it led just about every Wall Street analyst who follows the company to lower their expectations.
NYSE: VEEV
Key Data Points
Is it time to cut this stock loose, or could its best days still be up ahead? Let's look at more than just the headline numbers to see if the cloud services provider still belongs in your portfolio.
Image source: Getty Images.
Why Veeva Systems is down
Shares of Veeva Systems slid around 16% on Thursday morning following its fiscal second-quarter earnings call. More than anything else, investment bank analysts were disturbed by the company's slightly lowered revenue forecast for the fiscal year ending Jan. 31, 2023.
Instead of the range between $2.165 billion and $2.175 billion management provided a few months ago, Veeva expects total revenue to land in a range between $2.140 billion and $2.145 billion. The company also lowered its adjusted operating income expectation from $835 million for the year down to $820 million.
Why I'm not too worried
Veeva Systems markets cloud-based software subscriptions to businesses in the life sciences and other highly regulated industries. Most people never give it any thought, but developing new drugs throws out a lot of information that drugmakers eventually need to submit to the FDA and other regulators. For drugmakers that already have products to sell, Veeva's there to manage relationships with healthcare providers, who are also subject to heaps of oversight.
Veeva's customer relationship management service receives insights from roughly half a billion interactions between life science businesses and their customers. That gives the company lots of valuable insight its competitors don't have access to.
Nearly a decade after Veeva's IPO, there isn't another cloud services company geared toward the biopharmaceutical industry with a suite of tools as comprehensive as Veeva's. An ability to grow with the needs of its customer base is how the company is able to report significant growth at a devastating time for the industry it serves.
A tough environment
In the early days of the COVID-19 pandemic, practically anyone with a PhD and a slide deck could raise millions for their biopharmaceutical start-up. A stunning 104 biopharmaceutical companies raised at least $50 million in IPOs in 2021. Through the first eight months of 2022, there have only been 16.
Fewer start-ups looking for new software vendors would make growth impossible in 2022 if established biopharmaceutical businesses weren't expanding with help from Veeva every step of the way. This fiscal year, the company expects billings to grow 16% year over year to $2.27 billion.
Looking way ahead
Veeva Systems might post guidance from quarter to quarter, but it's executing a plan that looks way ahead. A couple of years ago, Veeva Systems predicted its annual revenue stream would expand from around $1 billion in 2019 to $3 billion by 2025. Moreover, the company committed to keeping its adjusted operating margin at 35% or higher.
This is a challenging year, but Veeva's top line is tracking ahead of its long-term goals, and the company isn't resorting to heavy spending on marketing to make it happen. In fact, sales, general, and administrative (SG&A) expenses as a percentage of revenue have fallen significantly over the past year, as seen in the chart.
VEEV SG&A to Revenue (TTM) data by YCharts
The well-managed company was able to report a second-quarter adjusted operating margin of 37.8%, which is comfortably above the goal of 35% set a couple of years ago. With a proven ability to execute its long-term goals, this company's best days are probably still ahead, so this stock is a buy on the dip.
