Recent Cloud IPO Veeva Systems Scores In Health Biz

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Software makerVeeva Systems ( VEEV ) got a lot of attention last month when it went public and bolted out of the gate, its stock more than doubling from a $20 IPO price in a few days.

Now that shares have settled back from early highs and the excitement that often surrounds an IPO has subsided, investors can focus on the firm's products, financial performance and growth prospects. Up nearly 2% Friday, Veeva trades near 38, where it opened on its first day in the market.

The tech company has a lot going for it, analysts say.

Veeva provides cloud-based software solutions and professional services for the life sciences industry. Its software is designed to help drugmakers and other kinds of customers improve their sales and marketing efforts and also operate more efficiently.

Information Manager

Veeva's lineup includes Veeva CRM, a customer relationship management solution that lets pharmaceutical sales reps, account managers and others manage, track and optimize interactions with health care providers.

The company also offers Veeva Vault, a cloud-based content management and collaboration solution that helps customers manage processes such as clinical trials, quality management, manufacturing, sales and marketing.

Another product, Veeva Network, is a cloud-based solution designed to help life sciences firms create and maintain records of health care professionals and organizations they interact with.

With cloud-based solutions, customers can operate more cheaply and efficiently than they would if they had to run software on in-house hardware systems.

"Veeva's cloud-based applications increase productivity and compliance of sales and marketing personnel, and have been successful in replacing legacy on-premise solutions in the life sciences industry," Deutsche Bank analyst Nandan Amladi noted in a report initiating coverage on Veeva.

These kinds of solutions are especially important in the life sciences industry, which has grown increasingly complex and regulated.

In a recent interview with IBD, Veeva CEO Peter Gassner said life sciences companies have a "tremendous amount of business processes" because of the nature of the industry.

"They are dealing with human life and government regulations, so this is the perfect industry for cloud (software)," Gassner said. "They were stuck with these legacy client-server systems that were not able to keep up as the regulatory and competitive environment changed."

Veeva has about 170 life sciences customers, including some leading drugmakers such asMerck ( MRK ),Eli Lilly ( LLY ),Gilead Sciences ( GILD ) and Bayer Healthcare.

About 65% of Veeva's revenue comes from North America. Another 23% comes from Europe and the remaining 12% from Asia-Pacific.

Demand for Veeva's software is reflected in the company's rapid financial growth. Annual revenue has more than tripled over the past two years.

Veeva, which was founded in 2007, is also solidly profitable. It logged net income of nearly $11 million during the first six months of the current fiscal year.

Analyst Amladi reckons Veeva has about 10% penetration in its core CRM market and less than 4% penetration in the broader market for content management and data management products. He estimates that the total addressable market is around $5 billion a year.

"Veeva's industry cloud model enables deeper specialization and can achieve greater market share -- more than 50% over time," Amladi noted.

Most of Veeva's competition comes from privately held firms such as Advanced Health Media Services and StayinFront, while rival Cegedim Relationship Management is publicly traded in Europe.

In his report earlier this month initiating coverage on Veeva, Canaccord Genuity analyst Richard Davis said that Veeva has "almost no" venture capital-backed competition.

The combination of cloud technology, in-demand products, strong financial growth, limited competition and high-profile clients helps explain why Veeva's stock price rose so rapidly in its first day of trading, Oct. 16.

The IPO pricing of $20 a share came in above the expected range of $16 to $18, and Veeva raised $260.9 million from the sale of 13.045 million shares. Banks involved in the IPO includedMorgan Stanley ( MS ),Deutsche Bank (DB),Wells Fargo (WFC), Stifel Nicolaus, Pacific Crest Securities and Canaccord Genuity.

Stock Market Buzz

Veeva shares closed at 37.16 on the first day of trading. They rumbled higher over the next few days before peaking at 49 on Oct. 21.

The IPO "generated the level of anticipation typically reserved for high-profile names such asTwitter ( TWTR ),Splunk (SPLK),Tableau (DATA) andWorkday (WDAY)," said Tom Roderick, analyst at Stifel Nicolaus. "We think this enthusiasm was and is warranted."

Despite the early volatility, many analysts remain bullish on Veeva.

"Early cycle disruptive technology stocks almost always work," Davis noted. "When you add in quite conservative estimates, almost no VC-backed segment competition, world-class reference customers and state-of-the-art cloud technology, we don't see many things that will shake investors' faith in Veeva."

Veeva is scheduled to report results for its fiscal third quarter on Dec. 5. Analysts expect earnings of 5 cents a share. A consensus of four polled by Thomson Reuters sees revenue coming in at $54 million, up from $36 million a year earlier. For the full fiscal year, revenue is expected to rise 51% to $196.3 million.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: GILD , LLY , MRK , MS , VEEV

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