EUR 850.00 For Business Accounts Only

Morningstar | VEEV Updated Star Rating from 24 Aug 2018

We believe Veeva’s results for its 2019 fiscal second quarter are a demonstration of the wide-moat firm's ability to successfully pursue revenue growth, even in an increasingly more competitive environment, and improve profitability. As a result of the firm’s continued strong performance, we plan to adjust our modeling assumptions over the explicit forecast period and anticipate a material increase to our fair value estimate. For the quarter, Veeva reported a 25% jump in revenue, operating income growth of 39%, and operating margin expansion of 250 basis points to 25.2%. Adding to the positive developments was a raise in full-year guidance by management. While Veeva Vault continues to outpace the more mature Commercial Cloud business, the Commercial side shows no sign of slowing, boasting user interface enhancements, customer expansions, and the promise of a new AI-driven data warehouse solution, Veeva Nitro. Further, the infrastructure migration to Amazon Web Services produced durable margin improvement in the subscription segment in the second quarter, with gross margin improving about 150 basis points from last year.

Customer expansion continued in the second quarter, in both Veeva's newer products like eTMF (over 200 customers) and CTMS (28 customers), and its older businesses like CRM, where a top-10 pharma signed on for global expansion. Additionally, Veeva landed its first seven-figure customer outside the life sciences, a result of expansion from an early adopter and a demonstration of the firm's successful customer retention. We believe this development points to the strong potential the firm possesses outside of its core life sciences business. Also, the company announced another new product on the Vault side, VaultTraining, targeting an unmet need in the quality area.

The effects of the impressive margin improvement in the second quarter are amplified by the fact that it largely stems from migration to Amazon Web Services and represents a positive shift for the subscription services segment. We were pleased to hear that the firm has expanded its headcount nearly 20% since last year (in addition to aggressive hiring planned for the second half of this fiscal year) because we believe it is necessary for the firm to invest internally in talent and development in order to maintain its momentum.

Finally, we believe that Veeva is well fortified against competition. Notably, competitor IQVIA has recently made moves in growing its life sciences technology business, building off a foundation of IMS Health's cloud platform and leveraging a partnership with Salesforce. In its second-quarter earnings call, IQVIA noted that since launching OCE, its cloud CRM offering, it had won eight out of 10 bids and cited several top pharma wins. This environment of heightened competition put Veeva's second-quarter customer wins into perspective, highlighting its wide economic moat. We estimate Veeva has captured over 70% of market share in the CRM space, and continued innovation like its new Sunrise interface and data analytics capabilities in Nitro will allow Veeva to capture more share and maintain high retention.