Opinion Update: Veeva Systems
You can never predict the future. There are always a host of unknowns around every corner and the pandemic is a reminder of this fact. But predictability is not entirely evasive within the market, it comes to us in the form of SaaS businesses, a longtime favorite of most modern investors.
Software as a Service businesses distinguish themselves by relying upon a subscription model, meaning one-time payments become monthly payments and revenue becomes recurring and foreseeable. This translates into meaningful metrics such as MRR (monthly recurring revenue), RPO (remaining performance obligations), and revenue retention rate, which give us a detailed picture of not only the current health of the business but its future prospects.
The appeal of SaaS businesses doesn't end there. They reduce costs as they expand, helping to improve margins and maintain revenue growth in the face of market saturation. Additionally, they decrease initial user costs allowing smaller businesses and entrepreneurs to access essential software. This means SaaS businesses enter new markets faster and gain revenue as these new players expand. These factors are undoubtedly reflected in the success of the sector. The BVP Cloud Index, which tracks 56 publicly traded cloud companies, is up 393% since 2011.
MyWallSt has a few SaaS businesses on our watchlist, but one of particular note is Veeva Systems. Veeva is not only a model SaaS business, it also has two of star investor Peter Lynch's favorite attributes: it’s pretty boring and it has a niche.
Veeva makes software for the life sciences and pharmaceutical industries and has seen considerable growth since we picked it in March of 2017 (+498%). Some of this can be attributed to the pandemic as Veeva seized the opportunity to gain new clients. It made its Veeva Engage communication software available for free until September, resulting in the product gaining 100,000 users and usage increasing ten-fold in just two weeks. Similarly, Veeva's clinical trial management system (CTMS) saw significant growth as it aids remote clinical trials and was adopted by AstraZeneca and other big pharmaceutical names.
But much of Veeva's growth has been consistent and accelerating year-over-year, a reflection of the brand's smart innovation and considerate leadership. Annual revenue growth has been regularly increasing, moving from 25% in 2017 to 32% in 2020, and product additions bring in new customers and the opportunity to cross-sell to existing clients. This is reflected in the company's impressive subscription revenue retention rate of 121%. Veeva is not only a pandemic success story, it is a long-term success story that investors should note.
In light of the pandemic's impact on SaaS companies, we have updated our comments on Veeva Systems but also Autodesk and Zendesk. You can start off with the Veeva comment by tapping on the stock symbol below.