Should Investors Be Worried About Veeva Systems' Slowdown?

Over the last few years, Veeva Systems (VEEV 1.16%) has become the dominant software-as-a-service company in the healthcare industry. But the company's growth is slowing down as it's captured a large portion of the drugmakers as customers. In this video from Motley Fool Live, recorded on March 8, Fool.com contributors Brian Orelli and Keith Speights discuss where Veeva is likely to find growth in the years to come.

Brian Orelli: Moving onto Veeva Systems. They released earnings on Tuesday. This is the software as a service company focused on the healthcare industry. They started as a drug rep, sales force, interactions with doctors, but it expanded into clinical trial and to help the industry in quite a bit of different ways. Revenue was at 27% for the quarter and 33% for the year. Most of that is subscription services, which are recurring. Those are definitely things that we liked as long-term investors. Earnings per share were at 52% on a GAAP basis and 44% on an adjusted basis. So they're getting some margin improvements there.

Then 2021 revenue guidance was from $1.755 to $1.765 billion. It amazes me that they can set a range. It's $10 million. That $10 million spread is 0.6 percent of the total. That tells you how confident they are in being able to have those recurring revenues year after year. But it's only going to be at 20% compared to the fourth quarter when it was at 27% and all of last year when it was at 33%. Seems like things are slowing down. When you have the entire industry as your customer, it can be hard to find future growth.

Keith Speights: It can be, and it certainly does seem like you'd say, Brian, that Veeva's growth is slowing. Twenty percent growth sounds great until you compare it to what the company has been doing. It's not as stellar as what Veeva Systems has done in the past. I will say the company's guidance in the past has tended to be a little lower than their actual performance turn out to be, but not by an awful lot. I think Veeva's guidance is probably going to be fairly good, fairly close to what they actually achieved. But they still have growth prospects. I mean, even with their large market share, they are still winning new customers even with their CRM system, customer relationship management system, which was one of their older products. They set a record in the third quarter of 2020 with 19 new CRM customers, and in Q4, they were close to that with 17 new CRM customers. So there's still growing even on an established market like that.

Orelli: That makes sense because you're going to have clinical-stage biotechs that launch their first drug. So those are going to be new customers that wouldn't need Veeva's CRM before that.

Speights: Exactly. That's where they see a real opportunity. In fact, they specifically mentioned that a lot and I would venture to say most, they didn't provide a specific number, but most of those new CRM customers were a clinical-stage company. I mean, that's a real opportunity for them. There's also an opportunity just to get their existing customers on additional products. Veeva has done a great job of expanding their product line over the last several years, and a lot of their customers might just be on one of those products, but not on multiple ones. So cross-selling is definitely an opportunity for them.

Then they're also expanding beyond life sciences. Obviously, life sciences has been their core focus since the company started, but they've moved into other industries, including consumer packaged goods, chemicals, and cosmetics. They've made some inroads. Now it's still really early, it's still not a huge part of their business, but that is nonetheless, a big opportunity for Veeva going forward.

Look, the company thinks their total addressable market with their core products commercial cloud and vault. They think that total addressable market is $12 billion, that's about $6 billion dollars each for those two products. Their 2021 projected revenue is a little less than 15% of that total addressable market. So Veeva certainly has an opportunity to continue growing. But I do think it's going to be more challenging to capture additional market share going forward. I think the easier growth is probably in their past, but I think the company can still deliver pretty strong growth for years to come.