Equity markets performed pretty well this year, especially compared to an abysmal showing in 2022. However, not every stock got the memo that things were rebounding. For instance, both Veeva Systems (VEEV 0.91%) and Adyen (ADYE.Y -1.57%) lagged the market since 2023 started. Here's the good news for investors: Things are looking up for Veeva Systems and Adyen, and both are excellent stocks to buy ahead of 2024. Let's dig in a little deeper.
1. Veeva Systems
Veeva Systems provides cloud services to companies in the life sciences industry. It has focused on this niche of the massive cloud market because of the unique challenges pharmaceutical and medical-device companies face. Healthcare is a highly regulated, capital-intensive field where it can sometimes take years to bring products to market. Veeva Systems' cloud services help its long list of customers, which includes some of the largest drugmakers in the world, comply with regulatory requirements and launch their products faster.
These services are incredibly valuable. Still, though Veeva Systems' financial results remain decent, the company has experienced a slowdown lately due to economic challenges affecting its clients. In the second quarter of its fiscal year 2024, ending on July 31, Veeva's revenue of $590.2 million increased by 10% year over year. Top-line growth has declined in the past couple of years for Veeva Systems.
VEEV Revenue (Quarterly YoY Growth) data by YCharts.
However, the economy has been improving. In Q3, U.S. gross domestic product grew by 4.9%, the fastest it has grown since Q4 2022. That's great news heading into 2024 since, if the economic rebound continues, Veeva Systems' financial results and stock performance could improve substantially. But even if it doesn't happen next year, it will eventually. And Veeva Systems' long-term prospects look highly attractive. The company estimates a total addressable market of $20 billion -- of which it has captured only 12%.
Furthermore, Veeva Systems benefits from an economic moat in the form of high switching costs. Its customers rely on Veeva's services for critical day-to-day operations, and migrating to another cloud provider comes with the risk of data loss, failure to comply with regulations, etc. Few companies will take that risk without an excellent reason. That's why Veeva Systems should retain most of its customers while improving its financial results in the next decade. The company is well positioned for solid returns through the next 10 years.
2. Adyen
Adyen is a fintech specialist based in the Netherlands. The company offers payment platforms that facilitate e-commerce and brick-and-mortar transactions, and allow corporations, especially multinational corporations, to accept payments across various regions of the world. The first half of the year was a bit of a nightmare for Adyen. On the one hand, the company failed to record the kind of revenue growth investors expected, partly due to the economy and increased competition.
Also, Adyen's management decided to invest in its future and hire more employees even as most other companies were doing the opposite. The result was lower revenue and margins than investors had hoped -- a poor combination for any company. In the first half of the year, Adyen's revenue of 739.1 million euros ($804.6 million) increased by 21% year over year, while its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was 43%; the company's EBITDA dropped by 10% year over year.
The company had previously promised a revenue compound annual growth rate in the mid-twenties to low-thirties in the mid-term, and it planned to raise its EBITDA margin to 65%.
Still, Adyen has slowed down hiring, which should positively impact its expenses and margins (increased wages kept margins low in the first half of 2023). The company will also benefit from a rebounding economy and increased consumer spending. In a recent business update, Adyen said it expects to grow its revenue in the low-to-high twenties through 2026 while getting its EBITDA margin back to above 50%.
In my view, these results seem well within the company's power. Looking further down the road, the fintech industry is still in high-growth mode, while Adyen has made it a point to expand into new territories. The fintech specialist also benefits from high switching costs with its payment platform. Even with the struggles it has experienced this year, Adyen remains a top stock to hold through 2033.
