EUR 850.00 For Business Accounts Only

Morningstar | Wide-Moat Veeva's 3Q Beats Expectations Despite Competitive Pressures; Maintaining $92 FVE

Veeva reported an impressive fiscal 2019 third quarter, beating our expectations as well as surpassing guidance on revenue, earnings, and billings. Subscription revenue of $178 million was up 25% from last year, and services revenue of $47 million was up 36%. The continued success from the past several quarters is a testament to the firm's wide moat in life sciences cloud services. After some near-term adjustments, we do not anticipate an increase in our fair value estimate of $92 per share.

Services revenue continues to trend above our expectations and drive outperformance for Veeva. After adjusting for management's updated guidance, we now expect over 27% growth from last year for the full fiscal year. With quickened adoption of new products this year, it follows that demand for implementation servicing increases as well. However, we expect growth in this segment to taper off as products mature and model slight improvement in these margins as newer products scale.

Across its Vault and Commercial products, Veeva continues to execute well by adapting new products to feedback from early adopters. Notably, the company signed its first top-20 pharmaceutical customer for Vault CTMS (clinical trial management system) for global operations. We believe that clinical trial-related products strengthen Veeva's competitive advantage due to the mission-critical nature of clinical trials to its life sciences customers, the global nature of many clinical trials, and the regulatory expertise necessary for effective clinical trial management. However, switching costs are less attractive than for some of Veeva's other products, as clients can opt to try CTMS on a project-by-project basis rather than implementation at an enterprise level.

The competition between Veeva and wide-moat IQVIA has intensified over the last few quarters, with IQVIA strengthening its customer relationship management product and Veeva announcing Nitro, its data warehouse offering. Management indicated that litigation against IQVIA is ongoing due to issues with utilization of IQVIA's data with the Nitro platform. The antitrust case is expected to go to trial in mid-2020. While there are other data sources that Veeva could use to bolster the Nitro product, IQVIA's data is largely viewed as best in class and is widely utilized in the life sciences industry. Given that Nitro already has four early adopters signed after announcing plans for the product six months ago, we don’t believe the issues with IQVIA data present an outsize risk to the new offering.