Shares of cloud-based software provider Veeva Systems Inc. (NYSE: VEEV) have been on a wild ride in the last year, surging by more than 40% from last November through March 2024 before giving up nearly all of those gains by June. The stock price floated toward the lower end of that range for most of the last three months, but this week's earnings report has helped to boost upward momentum once again.
As a $35-billion firm catering to healthcare and life sciences clients, Veeva is not among the most-talked-about software companies. Indeed, hardware makers like NVIDIA Corp. (NASDAQ: NVDA) have, as a group, largely outperformed software-focused peers in the last several quarters. Why is it, then, that Veeva shares have spiked by more than 13% in the last month?
Veeva's All-Around Strong Fiscal Q2 Performance and Guidance
Veeva's earnings report for the fiscal second quarter, which ended July 31, seems a likely catalyst for some of the recent share price advances. The company had an all-around excellent quarter, topping analyst forecasts and internal guidance on multiple fronts.
Second-quarter revenues of $676.2 million were up 15% year-over-year, while non-GAAP fully diluted net income per share was up just over a third to $1.62. Even more impressive was a 60% improvement over the prior-year quarter's operating income, as Veeva reported $166.5 million for the most recent quarter.
Digging deeper, key details of this strong fiscal performance include subscription service revenues and the relative pace of growth of top- and bottom-line figures. Veeva's subscription services include the bulk of its product offerings and have the benefit of generating recurring revenue over the long-term. Subscription-related revenue growth of 19% year-over-year outpaced overall revenue improvement, suggesting a strong core to Veeva's business.
Veeva's bottom line grew year over year at about twice the pace of its top line in the most recent quarter. It managed to do so in part because it reduced the professional services component of revenue costs as well as general and administrative expenses compared to this period last year. Should this be sustainable for future quarters, it could be an indication that Veeva is building efficiency by trimming excess costs.
Veeva is optimistic about the back half of its fiscal year. It raised forward full-year guidance for operating income by $10 million to $1,080 million and fully diluted net income per share to $6.22 from $6.16. It also boosted the lower-end of revenue expectations while leaving the upper-end unchanged from the previous report.
Both Large and Small-Scale Customer Wins
In prepared remarks, founder and CEO Peter Gassner highlighted that Veeva won a major contract with a top-20 biopharma company. Contracts with large companies like this one are a key component of Veeva's revenue. Importantly, though, it has also made efforts to boost its subscription business among small companies. In the second quarter, Veeva launched its Vault Basics suite of products specifically for emerging biotech firms with fewer than 200 employees and reported 12 early adopter contracts in the initial months after release.
Veeva: Watch For AI Developments
Like most other tech-focused firms, Veeva continues to navigate the rapidly shifting AI landscape. So far, the company has yet to settle on a strategy that has fundamentally transformed its business or contributed significantly to sales. However, Gassner did indicate two promising areas in development that investors may want to watch out for. First, Veeva's Vault Direct Data API is now used by some early customers to power AI applications. Additionally, Veeva's AI Partner Program continues to grow to about 30 use cases spanning more than 10 AI partners. To be sure, there remains significant space for expansion in this area, but Veeva has reiterated its commitment to a measured and long-term approach to developing AI tools.
Encouraging Results, Optimistic View
It may seem obvious that investors would react to Veeva's strong quarterly results with enthusiasm.
Reflecting on its May quarterly report, which was positive, it's evident that stability isn't guaranteed—subsequent results led to a brief, significant dip, marking Veeva's lowest share price in 2024.
The reaction immediately following this most recent report was markedly different, and the company's optimistic view of the future could help fuel further gains.
