VEEV - Veeva: Some Underappreciated Growth Opportunities

2023-10-20 10:47:20 ET

Summary

• Veeva is one of the leading software providers to the life sciences industry.
• Recently growth has slowed, mainly a function of saturation in the company's historic core of providing CRM solutions to the pharma industry.
• The company is in the process of moving its CRM solution to its own platform Vault, and this is likely to improve growth in that business segment.
• The company continues to expand its offerings of software for clinical and drug discovery applications.
• It has embarked on an ambitious, potentially game-changing journey with a set of comprehensive data offerings designed for life science users in all segments of that market.

Can Veeva hit its 25% growth target for fiscal 2025?

The geopolitical world is completely roiled. One of the more abhorrent conflicts rages in an era that has seen more than a few. Strikes, government shutdown potentials, a renewed conflict over the House Speaker position. Many investors accept that investing in the high-growth IT space will mean some roller coaster rides-but recent volatility has been sustained and substantial. There is, I believe, a yearning for some kind of safe haven trade, even amongst investors in notoriously volatile high-growth IT companies.

Whether it's Veeva or most other equities, the current environment is not conducive to capital appreciation. Volume suggests that buyers are mainly on strike, awaiting news about the current war and the prospects for a wider conflict. While that is the case, it is unlikely that any fundamentally based recommendation as this one is, will show much appreciation. I have no insight into how this war might end-obviously some feel it will proceed to some kind of apocalypse, but bond investors apparently think otherwise.

As a long-term investor, I find myself trying to ignore the current geopolitical turmoil. But I have to acknowledge that very few positive recommendations are going to work in this environment. The only positive thing I can say is that it affords potential investors in Veeva shares, as well as other potential investments a favorable entry point. But the odds are that some patience will be required.

I do want to make clear: this is an article about Veeva, its operational performance, its strategy, and its opportunities. At the moment those aren't the raging topic amongst investors. But eventually, fundamentals will overtake sentiment and emotion, and hopefully, that is a reason to consider Veeva shares as an investment.

At one point, not so long ago, Veeva (VEEV) was a high-growth IT vendor. It was a pioneer in providing CRM for the major pharma companies. Thereafter it built a platform called Vault which offers the health care industry solutions to enhance the cadence, the security, and the quality of the drug discovery and the operational processes of potential health sciences customers.

Recently growth has slowed . Part of the issue, at least in the current fiscal year, has been a well-publicized change in what is called Termination for Convenience rights . This change is costing the company about $95 million in reported revenues in the current year. Much of the impact took place in Q1, but it continues to impact reported numbers and will do so throughout the year. Absent this change, the company would apparently have been able to achieve mid-teens growth. It should be noted that the change really doesn't affect total revenue from a given contract, margins, or reported cashflow. It merely results in stretching out the timing of revenue recognition.

But there have been other reasons for the company's growth slowdown including saturation of its core CRM market. Veeva sold all of the major pharma companies its CRM solution some time ago. Growth has been a function of seat expansion, and the current environment has been a headwind - CRM seats for big pharma companies just aren't growing lately - indeed they may be declining and this is the major factor in the company's revenue growth slowdown. Over time, the need for CRM at pharma companies is diminishing along with their armies of salespeople-detail men as they used to be called. CRM for pharma needs some significant functional improvements in order to maintain its relevance.

A bit less than a year ago, the company announced that it was not renewing its partnership with Salesforce (CRM) which has been an element in the company's business basically since its start. There is a 5-year wind down provision in the agreement so users will be able to migrate at their own tempo. Over time, the divorce is probably positive for Veeva's CAGR - the company will refresh its CRM offering and be able to offer users a better experience as its CRM product moves to its Vault platform. It is almost certainly going to have positive margin implications in FY '25 and thereafter.

The company is expecting reported revenue growth of around 12% in the next two quarters. The published 1st Call consensus for revenue growth next year of 18% which aligns with the company's minimum projection of achieving revenue of at least $2.8 billion in its next fiscal year with a goal of reaching $3 billion. This article explores the factors that should allow the company to achieve a notable growth recrudescence. If Veeva does reach its goal, I believe the shares, despite a valuation that may seem elevated to some, will be able to achieve positive differentiated performance.

Most recently, one of the company's marquee customers, Pfizer (PFE), announced a major program to remediate costs , primarily because of falling sales of its COVID-19 vaccine. It has been speculated by some analysts that Pfizer has a $15 million/year CRM contract with Veeva. The agreement, no doubt is multi-year; Pfizer probably also licenses Vault multiple products as well.

I have no specific knowledge of the size of Pfizer's annual spend with Veeva, or to what extent it will try to reduce that spend. Pfizer is not likely to eliminate all of its CRM or clinical software spend; it probably can't do that and continue to operate efficiently. But even suggesting a substantial cut in spending, my guess is that the total annualized revenue hit to Veeva will not be much more than $10 mil./year. That is substantial but probably less than a 1% revenue impact, given that the company is projecting full-year revenues just shy of $2.4 billion.

Probably due to speculation about the potential loss of some Pfizer business, Veeva shares have been weak the last week or so falling about 4% . Before that time, the shares had made a yearly high in early September, before falling about 15%, but then recovering in early October.

Overall, the shares have performed reasonably so far in 2023, rising more than 28%. That is in the same overall range as software/cloud stocks and reflects share price spikes after the two latest earnings releases in late May and late August. Just by comparison, the tech/software ETF, IGV , which includes megacaps is up by 36% on a year-to-date basis while the WCLD ETF is up just 15% . So, shares of Veeva are in the range in terms of the company's year-to-date performance. Like most software companies, shares made a high in Nov. 2021 and are still down by almost 40% since that peak.

Given the company's above-average EV/S ratio, Veeva shares will not be for all subscribers/readers. I believe that the company's business outlook is a bit less cyclical than is the case for some other software companies, although, of course, the issue with Pfizer illustrates that the life science space is not immune to macro conditions.

When I construct a portfolio, I look to include a range of companies with regard to growth, visibility, demand stability, and profitability. In the recent past, Veeva's organic growth rate has declined, although not to the extent of many other high-growth companies that I recommend. With the economic outlook so tendentious, I think it only prudent for a portfolio, even a high-growth portfolio, to focus on a couple of holdings at least that include companies with visibility, profitability, and demand stability. But I am also looking for companies whose growth can positively affect if some of their initiatives come to fruition and for companies that can consolidate a space. It is based on those considerations that I recommend to subscribers/readers initiating or adding to positions in Veeva shares at current prices .

Veeva is one of the most profitable IT vendors and that has been the case for many years now. Despite the growth slowdown, the company's operating and free cash flow margins are near 40% and are likely to remain at that level for the foreseeable future. That can make comparing Veeva valuations to those of other vendors a bit tricky. Based on current estimates, the shares have what seems like an elevated valuation with an EV/S of just less than 12X (priced as of 10/18). But putting that together with a free cash flow margin of 38% shows the shares to be reasonably valued on a relative basis - not cheap, perhaps, but near average for a high teens growth cohort.

Veeva: A comprehensive portfolio of solutions for life science customers

Veeva has built out a significant set of software capabilities to improve the operational performance of its life science customers. Most of its revenue is from subscriptions and that will continue to be the major source of growth. Professional services is likely to decline over the coming years as a percentage of revenues. At this point, the company has over 35 products. The company started out providing CRM for the pharma industry and it still does. That space is actually still growing modestly because even the smaller pharma companies are now buying CRM solutions. That said, the main growth drivers of Veeva these days are its offerings in clinical operations and drug safety.

Veeva is perhaps the largest single software vendor in the life sciences space, although there is no single definition of the space. The following linked article was perhaps the most authoritative in terms of sizing the software life sciences market that I saw. It suggests that global life sciences software is a market of about $14 billion currently, rising to $31 billion over the next decade, a CAGR of 7.5%.

I expect that Veeva will be a consolidator of the space over the coming years based on a methodical introduction of additional products coupled with leveraging its broadest in-class platform. Veeva is just beginning its AI journey . The company is likely to add AI functionality to most if not all of its current offerings; its initial AI rollout has just begun. I expect that AI will be a factor in raising the CAGR of the space from 7.5% in the linked analysis to something a few hundred basis points higher. And it should also improve the outlook for Veeva's CAGR.

Recently, the company began to focus on providing data to its customer base. Compass is said to be the most comprehensive data platform in this industry, although of course, such a claim is impossible to validate. It is a platform that encompasses a suite of patient data, prescriber data, and national data with strong privacy features. It already has some marquee customers such as Johnson & Johnson (JNJ). Customers use it in a variety of use cases that range from target marketing to multiple forms of customer discovery and to a variety of customer analytic queries. The company has yet to release some parts of the functionality within the Prescriber and National components of the solution which will further extend the use cases.

Management has significant expectations for Compass. It is designed, overall, as a product to replace IQVIA . ( IQV ). Will that work? IQVIA is a large company compared to Veeva. IQVIA's revenues last quarter were $3.7 bil, up a bit more than 5% year on year. IQVIA and Veeva have been at war for some time. Veeva filed an antitrust complaint against IQVIA and IQVIA has a trade secrets suit against Veeva. Not much has apparently happened in these suits for some time now. The FTC has sued to block a recent potential acquisition of IQVIA on anti-trust grounds.

At this point, due to the complexity of the issues, and delays due to Covid, the trial is scheduled for some time in 2024. I don't want to pretend that I have some particular knowledge regarding the potential outcome of the lawsuits. The most I can say is that it seems possible that some of IQVIA's most aggressive tying and marketing practices might be limited. How that would translate into success for Compass is simply not something that can be readily projected at this point.

I don't want to pretend that I have some crystal ball that reveals how successful Compass will be. it is almost impossible for an outsider to project just how successful Veeva might be in poaching customers from IQVIA-and yet that has to happen for Compass to reach a reasonable scale. That said, even modest success can have a visible impact on Veeva's potential revenue growth rate. Gaining a 5% share in this market, i.e. achieving a revenue run rate of more than $700 million/year over the next several years would create a noticeable tailwind for Veeva's CAGR, which is projecting fiscal 2025 revenues of $2.8-$3.0 billion. Over the years, Veeva has entered several large markets with incumbents and has been very successful. Part of the investment case for Veeva is the potential the company has to restore its growth rate to greater than 20%. And the opportunity to do so rests in part on the success of the company's initiative in the data space, and in particular Compass.

Veeva has been selling Compass, even in a very limited state for a few quarters with some success. But the real proof points won't emerge until all of the core functionality of Compass has been in the market for a couple of quarters, i.e. sometime in the middle to end of calendar 2024.

Other data products include Link, which as the name suggests, is the company's equivalent of Linked-In functionality focused on the scientific and medical communities. The company also offers OpenData, a customer reference data set for healthcare professionals, organizations and affiliations. It resembles in some regards, the data available generally through ZoomInfo.

Veeva believes that its secret sauce in this area is going to be its platform approach. That has been a winning strategy in many other IT areas - it is the approach that Veeva has taken with Vault and has worked in that space.

The CEO also talked about the architecture of the suite and its "cleanliness." He also claimed that he felt that the market reaction to Compass was similar to the market reaction to the early days of Veeva CRM. The fact access to global and relevant data is unquestionably of rising importance to life science companies in particular. The goal is to become the leader in life sciences data. IQVIA has sat unchallenged in its dominant position for the past 20 years, and it wouldn't surprise me to see Veeva, with its strong track record and productive R&D teams, have some success in this space. I don't really think it is possible to foretell just how much success over what period-and much of the success will be a function of execution.

Veeva has had a long track record of underpromising and overdelivering and I expect this will be the case when it comes to forecasting the growth cadence for Compass. I don't want to describe the revenue increment from Compass as quite lagniappe-but to an extent it is, as the current growth estimates for the company do not include a material contribution from this product suite. If the Compass initiative is reasonably successful, my guess is that the company's CAGR will accelerate notably, and with it the potential value of the shares.

While Compass is neither the cornerstone nor the keystone of my positive investment case for Veeva, I will observe that some of the best performing IT companies in terms of growth and share price are those with strong market share stories based on disrupting a particular space. Datadog (DDOG) in observability, CrowdStrike (CRWD) in end point security and Zscaler (ZS) and Cloudflare (NET) in zero trust security have seen both rapid growth and above-average valuation because of their ability to gain share. The potential for Veeva to achieve the same kind of trajectory in life science data is one that certainly exists, but realistically it is too early for there to be proof points.

The current major growth engines for Veeva relate to its Vault Platform. Within Vault there are some significant components that have shown strong acceptance including Clinical Data Management which helps manage drug trials, Clinical Operations, Quality, Safety, and Medical. As mentioned, the company has 35 or so products that are on its Vault platform, and it rates these from early to mature. No worries, I have no intention of reviewing all of them. Of particular interest at the moment are solutions called Veeva RTSM which is interactive response technology that was acquired when Veeva bought Veracity Logic and Veeva ePro which is part of the company's patient and site engagement suite. RTSM is about randomizing patients as part of a drug trial process. ePRO is a solution that captures questionnaire data directly from clinical trial patients using an app or a web page. Its benefit is to speed up clinical studies.

I don't want to suggest that understanding Veeva requires understanding all of the host of offerings it provides on Vault. I confess that I certainly lack such understanding. I think what is worth understanding is that the company has the most extensive platform in the space and that the platform approach has resonated with customers of all sizes. I also think it is worth understanding that Veeva, at least in part, is consistently managing its business so that it always has some products in the early stages of adoption providing it with near-term growth opportunities and the opportunity to leverage its platform position.

Veeva also offers what it calls its Commercial Cloud , which includes the company's CRM suite, its Compass offering, Crossix , a targeted, data-driven marketing solution, and other software products designed to enhance revenue and compliance. Commercial was the strongest growth component of Veeva last quarter, and the company raised guidance for this segment by about $5 million to account for its continued overperformance. The company has continued to book new CRM customers; there has been no visible impact in terms of customer acceptance from the company's announcement late last year that it was moving its CRM products to its Vault platform. Last quarter, Veeva acquired 11 new CRM SMB customers, and it has now provided a live demo of what it Vault CRM product will look like.

A new bit of functionality for CRM is an AI app based on bots . The app itself will be integrated with Compass. While the potential for AI within Compass and CRM is substantial, it is not likely to produce significant revenue until FY 2025 and beyond. It's just the start of a long process of developing, announcing, and deploying apps that use AI technology to enhance the efficacy of much that Veeva has offered users.

I will review Veeva's recent operating performance and growth below. But in terms of looking at a valuation, my CAGR estimate for the company based on how it has been able to perform in the current environment is for growth of about 18%, or in line with the published 1st Call consensus growth rate estimate for fiscal 2025. Depending on the success of Compass, and the ultimate use of AI as part of an integrated solution, I think Veeva's growth could return to the low 20% range over the next 18-24 months. As mentioned, the company does have a 25% revenue growth goal that it has presented: I doubt that it will explicitly forecast that level of attainment and in the current environment I think expecting that kind of performance could easily lead to disappointment.

Veeva's Competitors

Because Veeva's platform is so extensive, a service such as Gartner which I have linked to here , lists a substantial number of competitors. Overall, the number of competitors who are focused on selling workflow and quality software to the life sciences market is far less than portrayed. Obviously, SAP (SAP) and Oracle (ORCL) have products that can be used in this space, but they do not offer purpose-built products that match up with what Veeva offers for specific clinical information and workflow use cases. PTC (PTC) Windchill, listed by Gartner in its compendium of Veeva alternatives is really not anything close to a competitor despite its listing.

At this point, Medidata is probably the closest there is to a company that matches up to most of what Veeva offers. Medidata was acquired a few years ago by Dassault Systèmes (DASTY) for a bit less than $6 billion, or an EV/S a bit less than 10X. At the time it was acquired, it was growing more slowly than Veeva, and that is still likely the case. For what it is worth, I have linked to a comparison of the two vendors here; Veeva simply has far greater resources and a more comprehensive platform than Medidata at this point.

As mentioned, IQVIA is one of the larger health information companies. It competes against Veeva in the CRM space and here is a comparison from an SI. At this point, Veeva continues to acquire customers in the space. Veeva doesn't present an expansion rate overall, and perhaps because of the scope of its offering, an expansion rate would not be particularly meaningful. There are probably fewer CRM seats amongst the largest pharma vendors today than was the case a couple of years ago, both because of technology trends and cost remediation efforts on the part of big pharma. That said, IQVIA has not apparently acquired any of the top 20 pharma companies since it launched its product.

One of the biggest questions with regard to competition is what will Salesforce do now that Veeva has chosen to move its CRM solution to its own platform. Previously the agreement between Salesforce and Veeva prevented Salesforce from selling its own CRM product in competition with Veeva within the life science space. With the expiration of the agreement, Salesforce could develop and market a competitive product. I don't think it is terribly likely that it will do so: Veeva has sold all of the 20 largest big pharma companies who are using its CRM product today as well as several hundred smaller companies in the pharma space. Changing CRM vendors is expensive, time-consuming, and rarely creates benefits. There is no current indication that Veeva's CRM customers are either unhappy or looking for an alternative vendor. In the meantime, Veeva is launching a refreshed CRM product that it has just started selling. It believes that most migrations will take place in FY '25-'26. It would seem that the potential for Salesforce to launch its own competitive CRM product in the pharma space is inadequate to warrant the required resources.

The Veeva business model - What will it do with the surplus cash it is generating

For years now Veeva has been one of the most profitable companies in the software space. Last year its non-GAAP operating margins were a bit less than 39%; in the prior fiscal year, they were 41%. The decrease reflects a return to in-person marketing events and a more rapid hiring cadence. Unlike many other software companies over the last year, Veeva was able to meet its forecast that it set at the start of the fiscal year in terms of revenue growth and to modestly beat its non-GAAP operating income target and it has continued to hire at a measured pace.

The company is projecting a non-GAAP operating margin for the full fiscal year of about 35%. The current forecast, presented at the end of Q2 is about 12 bps above the previous forecast. The dip in margins being forecast relates to what is called "termination for convenience" which relates to a specific contractual provision; excluding this one-time event, operating margins are actually rising a bit. For the full year, after normalizing for the TFC impact and a small FX impact, the current forecast for operating margins is around 38%. As mentioned, TFC is one of those contractual provisions that must be reflected in the timing of revenue recognition, but not in the total amount of revenue nor does it impact either billings or cash flow.

The company did raise prices at the end of last year; these price increases will not meaningfully contribute to revenue until the end of the current fiscal year and beyond. That can be seen in looking at non-GAAP gross margins. The company's non-GAAP gross margins have remained relatively consistent. Last quarter non-GAAP subscription gross margins were 86%, nearly consistent with year-earlier levels. Of course, the gross margin on professional services is substantially less, although it was unusually strong last quarter due to stronger utilization. Overall, non-GAAP gross margins were 74.3% last quarter, compared to 74.5% in the year-earlier period, Gross margins rose noticeably from Q1 which had the maximum impact from TFC accounting policy.

I am not going to review each operating expense line item in detail because of the impact of TFC on quarterly metrics. Overall, the Veeva business model features elevated spending on research and development and compressed spending on sales and marketing. There are other software vendors with somewhat similar models - perhaps most prominent is Atlassian ( TEAM ) but there are several others. For the most part, that kind of business model is associated with accelerated growth but in the last year with macro headwinds that has not been the case. In the quarter most recently reported, non-GAAP research and development expense was 19% of revenues compared to 18% of revenues the prior year.

Sales and marketing expense was only 12% of revenues this past quarter, down marginally in terms of its cost ratio from the prior year. The sales and marketing expense ratio is one of the lowest such levels that exists in enterprise software. General and administrative expenses at 7.5% of revenues last quarter is also below average for a company of this size.

The company does forecast cash flow. At the start of the fiscal year, it forecast an operating cash flow margin of 34%. That margin includes an estimated cash tax payment due to the capitalization of some development expenses. It is now expecting its operating cash flow margin to be about 36% for the full year. So far in the current fiscal year, cash flow is running well above guidance; it is actually up by 34% year on year through the first half of the fiscal year. The major factors in this performance are the significant improvement in profitability, a stronger performance for deferred revenue, and a significant change in unbilled receivables.

Unlike many other software companies, Veeva does not consistently report or forecast its net expansion rate from its installed base. It would be useful information to have, but it isn't reported. It also doesn't report or forecast ARR and ARR growth. I far prefer that disclosure about revenue than almost any other metric, but again, Veeva simply has not chosen to report it, and there is no requirement for them to do so.

The company does report a metric it calls normalized billings. Normalized billings adjust for changes in billing terms. This metric is followed by most investors/analysts and often will move the shares. The company does forecast quarterly billings, but the fact is that this is not a metric to which Veeva manages. Billings were quite strong last quarter rising by 16% year on year. Some of this relates to deal timing. Billings exceeded the prior forecast by 2%. The company's forecast for full-year billings of $2.615 billion remained unchanged.

One hears the term resilient these days, both with regard to the economy, but also to the business outlook of certain companies. I think Veeva's business model, after adjusting for specific one-time events, that really are one-time, is also highly resilient.

Veeva ended its latest quarter with a cash balance of $3.8 billion, and as mentioned, it has raised its expected operating cash flow forecast to $860 million for the current fiscal year. It has no debt. The company has made acquisitions in the past, and this is a reasonable environment in which to make acquisitions. Alternatively, the company could develop an investor-friendly capital return strategy. The company's cash balance is about 12% of the market cap, a ratio quite a bit greater than normal for a software company.

Veeva does use stock-based compensation, and last quarter stock-based comp was 17% of reported revenues and a bit less when adjusting for the TFC revenue write-down. That compares to 18% in the year earlier period-Veeva is both non-GAAP and GAAP profitable.

I far prefer to look at dilution in considering the real cost of SBC. Last quarter dilution was 0.5%, and the year-over-year growth in outstanding shares was less than 1%. I use a forecast for 2% dilution in calculating valuation metrics.

Wrapping Up-Summarizing the case to acquire Veeva shares

It has been several years since I last wrote about Veeva for SA. I have owned the shares more recently than my last recommendation. The shares have tracked much else in the IT space, rising sharply to a peak in late 2021, falling significantly during last year's massive rerating, and then rallying, more or less in line with a representative software ETF. Through that time, the company has continued growth and maintained a high level of profitability and free cash flow margin.

The company is one of the largest software vendors specializing in solutions that reflect the needs of various requirements in the life sciences space. While certainly, not immune to cyclical factors of various kinds, life sciences companies are far less cyclical in terms of changes in demand than is the case for many other large buyers of enterprise software.

Veeva has a very broad portfolio of solutions for clinical operations and for drug discovery applications and it also has a leading position in CRM for the pharma space as well as other commercial applications. It now has about 35 products to sell to its customers in varying stages of maturity. Currently its ePRO and RTSM offerings are driving significant growth.

The company is moving its CRM solution to its own Vault platform. The initial customer signed up for the new offering last quarter but it will not be generally available until FY '2025. The move is a significant undertaking for Veeva, but over time, it will increase gross margins and probably create a modest demand tailwind for a few years.

Perhaps the most significant new product initiative that Veeva has launched for years is its foray into the life science data space. Its platform is called Compass; not all of the functionality has been released. Compass actually has the potential to be a game-changer for Veeva, although I don't anticipate that will happen immediately. The market opportunity relative to the size of Veeva is significant, and the company is looking to grab share from a legacy vendor, IQVIA, that hasn't dealt with much competition in quite some time. The company has seen some early success with Compass but it is far too soon to suggest that the path to a revenue opportunity in the hundreds of millions a year is clear and not littered with obstacles.

Veeva shares in the last few days have reflected concern about cost remediation efforts by one of its significant customers, Pfizer. Pfizer announced a massive cost remediation plan to adjust its spend to a lower level of revenue due to the absence of significant Covid-19 vaccine revenue. Of course, I don't know with precision just what Pfizer's cost-cutting will mean for Veeva-my guess is that it is less than 1% which should be manageable given the company's track record of very conservative forecasts.

Veeva's reported results this year are a bit distorted because of adjustments it is making to reported revenue for contractual terms. Adjusting for that, revenue growth this year is in the mid-teens percent. The company's revenue goal for next year is $3 billion, with a minimum forecast of $2.8 billion. $3 billion, if it happens, would represent apples-to-apples revenue growth of 25%; $2.8 billion would represent normalized revenue growth of about 17%. That 25% growth aspiration would be the strongest achievement for Veeva on an organic basis in several years.

I have used an 18% CAGR as my growth estimate; I think that there is a reasonable chance it will be higher but would like to see some substantive evidence before making a huge change in my growth rate projection. Based on my estimate, Veeva shares have an EV/S or just less than 12X, and of course that is a significant premium compared to the average for that valuation metric. But with a 37% estimated free cash flow margin, valuation come back to earth. This company does have significant earnings: its forward P/E is in the range of 38-39X.

Most readers will have been inundated with economic forecasts of varying kinds over the past months. I don't want to claim that I have some unique economic insight - I do not - and honestly, there are really no models that have some unique track record. But for what it is worth, my best guess is that there will be a recession of some noticeable level next year. And in a recession, I think a company like Veeva selling into the life science space will see more demand stability and visibility than many other alternatives in the space. The company is likely to continue to see strong growth from some of its most recent product introductions and its refresh and replatforming of its CRM offering is likely to be a revenue growth tailwind as well.

The opportunity for Compass is substantial-and is certainly nowhere reflected in either estimates or valuation. Veeva's track record on entering markets is strong; that said it has never had to deal with an entrenched competitor with the strengths of IQVIA. It is not quite necessary for Compass to generate substantial revenues for the investment case to work; if it does work - and my guess is that it will at least to some extent - Veeva's growth estimates will move sharply higher and the shares will be rerated substantially as well.

Should readers buy Veeva? It is a reasonable investment just as it stands. It will like be a spectacular investment if it has meaningful success with Compass and its associated products. And it can readily achieve growth above expectations if its new incarnation of CRM gains significant traction and/or if it achieves substantial penetration with its newest clinical offerings. The investment case has many potential levers for success. I think Veeva shares are likely to produce significant alpha-and perhaps a lot of it - over the coming year.

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