Opinions
Jerome Hass
Veeva Systems Inc
VEEV-N
TOP PICK
Apr 16, 2014
Stock price when the opinion was issued
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(A Top Pick April 16/14. Up 32.79%. (As this was a Short, expected to go lower, and the price is now higher, I figure this should be “Down” 32.79%. Did BNN get it wrong or am I out to lunch? - Bill) (Short) Primarily focused on customer relationship management. They have taken software from SalesForce (CRM-N) and customized it in their vertical, which is a life sciences. One of their main customers is a pharmaceutical company, so they currently deal with 30 of the 50th largest pharmaceutical companies globally. Because they were using someone else’s software and essentially customizing it, they were able to avoid a lot of the start up costs. Because of this they were able to get a very large market share of about 30%, very quickly, by undercutting their competitors by 40%-60%. This is now an industry that is growing at single digits, and this company has a 30%+ market share. There are 4 major players. His view was that there wasn’t a lot of growth ahead. At the same time it was a stock that was valued at 80X this year’s earnings and 40X EBITDA, at least twice what all its peers are trading at. Also, the 800 pound gorilla, SalesForce, announced that they were going to be entering the same vertical. Feels it is inevitable that SalesForce will be taking a lot of market share from them.
(A Top Pick April 16/14. Down 19.84%.) Short. It is often the case with a Short that you not only have to get the story right, but also the timing. This hasn’t quite materialized yet. This is a very expensive stock at 80X this year’s earnings and 40X EBITDA. If this is a fast growth company, people are sometimes going to be in those kinds of multiples, but this is in a very slow growth industry. For their kind of industry, it is hard to justify the multiples.
We like VEEV, but it tends to have volatile results and it is expensive. It has a nice niche in CRM healthcare and $4B cash. But we do like ISRG 'better'. It is a global leader and we think has a very strong moat. It is also expensive but has dominated its industry now for a very long time. New products and AI developments may also accelerate its growth.
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Executive departures always cause investor stress, but they are not automatically bad. In VEEV's case, the company indicated the departure is amicable and it also reconfirmed guidance. Based on its prior solid history, we would have no reason to doubt its statement. While growth has been volatile, we certainly would consider it a high quality company, with a strong niche in its specific health/tech/sales area.
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SHORT. A software company in the CRM space and they use, as their building blocks, the large SalesForce.Com (CRM-N). As a condition SalesForce said you can only sell in the healthcare space. They already have 45% market share and there are 3 players in there. Doesn’t know how much more they could grow. Did an IPO 6 months ago. Initial IPO range was $12-$14 and they bumped it up to $20. If they were willing to sell their shares at $12-$14 and they are now at $24, you have to think that there are a lot of people who will be motivated to sell shares. He has been seeing this over the last 4-5 months. Also, their partner and supplier just announced they are going to become a competitor.