Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Does Veeva Systems Inc. Make Money?

Interestingly, the coronavirus pandemic is inflating the prices of pharmaceutical and tech stocks. Case in point: Veeva Systems Inc. (NYSE: VEEV).

Veeva’s share price grew from $143.40 on 2 January 2020 to $273.96 on 25 September 2020. Notably, Veeva’s’ share price hit a high of $294.08 on 1 September 2020.

Veeva’s share price is so high I have to wonder if pharmaceutical and tech stocks are in a bubble. To elaborate, Veeva provides cloud-computing solutions and applications for the pharmaceutical industry.

Is Veeva Systems Making Money?

I think pharmaceutical stocks are in a bubble because Veeva Systems (VEEV) reported quarterly revenues of $353.68 million on 31 July 2020.

Moreover, Veeva Systems reported a quarterly operating income of $90.08 million on 31 July 2020. Additionally, Veeva reported a quarterly gross profit of $256.48 million on 31 July 2020. Plus, Veeva reported a quarterly common net income of $93.55 million on 31 July 2020.

I think Veeva’s revenues and income are too low to justify a $270.57 share price. However, Veeva is experiencing an incredible rate of growth. Stockrow estimates Veeva’s revenues grew at a rate of 35.52% in the quarter ending on 31 July 2020. Furthermore, Veeva’s revenues grew at a rate of 37.73% of 30 April 2020.

Is there a Pharmaceutical Stock Bubble?

I think Veeva (VEEV) is bubbling because it makes little money but grows fast. That sounds similar to the dotcom bubble stocks at the turn of the century. Remember, the dotcom stocks grew fast, but their share values grew faster.

Moreover, many of the stocks sold an idea such as selling pet food over the internet (no, not Chewy but the notorious Similarly, Veeva sells cloud-computing solutions for the pharmaceutical industry.

Back in 1999, investors loved the idea of selling pet food through the internet. Today, investors love the idea of using the cloud to make pharmaceuticals. Other investments love the idea of making money from a coronavirus vaccine.

Unfortunately, a coronavirus vaccine today is a purely theoretical product. Just as an online pet food retailer was a purely theoretical product in 1999.

What is Veeva Systems (VEEV)?

Veeva Systems (VEEV) has a platform that pharmaceutical companies use. For instance, Veeva claims manufacturers launched 81% of new drugs with its Veeva Customer Relationship Management (CRM) software. 

In addition, Veeva claims its Vault eTMF software cut the time needed to process Trial Master Files (TMFs) by 40%. To explain, the TMF contains all the documents government regulators use to approve a new drug. Plus Veeva claims its Veeva OpenData app increases the speed of data change resolution by 90%.

Additionally, Veeva claims over 900 organizations, including Genetech, GlaxoSmithKline, AstraZeneca, Bayer, Teva Pharmaceuticals, Lilly, Merck, Sobi, and Biogen use its technology. Veeva’s services include clinical data management, consulting services, the Veeva Commercial Cloud, Research Site Solutions, Vault Safety, and Clinical Operations.

Some interesting Veeva services include Environment Management as a Service (EMaaS), Transformation Consulting, and Administrator Training.

How Much Cash does Veeva Systems Generate?

Veeva Systems (NYSE: VEEV) makes small amounts of cash. For example, Veeva reported a quarterly ending cash flow of $73.15 million on 31 July 2020.

That quarterly ending cash flow fell from $723.84 million on 30 April 2020 but rose from a negative -$413.99 million on 31 January 2020. In contrast, the quarterly operating cash flow rose from $39.11 million on 31 January 2020 to $282.17 million on 30 April 2020.

Veeva could borrow money to finance its operations. To explain, Veeva reported a $9.03 million quarterly financing cash flow on 31 July 2020. That quarterly financing cash flow grew from $2.12 million on 31 January 2020.

Consequently, Veeva Systems had $1.495 billion in cash and short-term investments on 31 July 2020. Veeva had $1.087 billion in cash and short-term investments on 31 January 2020 and $1.381 billion in cash and short-term investments on 30 April 2020.

What Value Does Veeva Systems have?

Veeva Systems had total assets of $2.516 billion on 31 July 2020. Hence, Veeva (NYSE: VEEV) has limited value. In addition, Veeva pays no dividend, so it offers no margin of safety.

I think Mr. Market’s bases his valuation of Veeva on pure hype. In fact, I see nothing in Veeva’s financial numbers that justifies the $273.96 share price.

I think Veeva and many other pharmaceutical companies are in a bubble. I predict the pharmaceutical stock bubble will burst and collapse. When that bubble bursts and collapses, Veeva could be a stock to buy. Until then I think investors need to avoid Veeva because I believe it will collapse.