The cloud computing industry has faced some headwinds in recent years. Demand for cloud-related services took a hit amid economic troubles. Veeva Systems (NYSE: VEEV) , a life sciences-focused cloud specialist, didn't escape this ordeal. The company's shares are down by 32% in the past three years.
However, there is much to admire about Veeva's business. Its performance has been improving, and there remain plenty of opportunities ahead for the company. Here's why investing $1,000 in this stock would be a great move.
VEEV data by YCharts
Veeva's shares soar on solid earnings
Although the cloud industry is competitive, Veeva Systems' strength is that its solutions are tailor-made to address the unique needs of life science companies, which deal with a maze of stringent regulations and capital-intensive investments in products that can take years to make it to the market (if they make it at all), among other things.
Veeva Systems has become one of the leaders in this niche of the cloud market. The company makes much of its money through subscriptions from its clients, a list that includes some of the largest pharmaceutical companies in the world. Veeva's revenue growth rate has slowed from its 2021 level when business was in high demand, but they have been rebounding since last year.
VEEV Revenue (Quarterly YoY Growth) data by YCharts
In its latest period, the second quarter of its fiscal 2025, ended on July 31, Veeva's revenue increased by about 15% year over year to $676.2 million. Notably, the company's subscription services revenue grew 19% to $561.3 million.
Veeva Systems continues to be highly profitable. The company's gross margin was 74.8%, up from 71.4% a year ago. Its earnings per share came in at $1.04, up almost 53% compared to the year-ago period. The market received Veeva's results well, sending its stock price soaring on the heels of its earnings release.
An excellent buy-and-hold option
There are solid reasons to think Veeva Systems still has plenty of growth potential, beyond the economic-related fact that the headwinds it has faced in the past few years won't last forever. One reason is that the business benefits from switching costs .
Veeva's clients use its services for critical day-to-day activities, such as drugmakers keeping track of data for clinical trials, for instance. Think about how difficult it would be to jump to a competing platform, the logistics of transferring the data to another platform, and the risk of losing some valuable data.
For a company that has already invested tens of millions of dollars into developing a drug, it makes little sense to take this risk. That's why Veeva is likely to keep most of its customers. And as the company notes, it is performing well against its competitors. Says Paul Shawah, Veeva Systems' vice president:
I think we're winning virtually every CRM [customer relationship management] deal. You certainly never know if you're winning all of them, but it certainly feels like we're winning all of them. We know we're not losing any deals to competitors that we're competing in.
Veeva Systems serves an industry worth $2 trillion that is expanding at a compound annual growth rate (CAGR) of 6%. It estimates a total addressable market (TAM) of $20 billion, which dwarfs its trailing-12-month (TTM) revenue of $2.6 billion.
If the company can grow its TTM revenue to even a quarter -- $5 billion -- of its TAM in the next six years, its TTM revenue will increase by a decent CAGR of 11.5% through this period. Can Veeva Systems pull that off?
Given the company's competitive edge in the form of switching costs and its track record -- in the past, it has set revenue targets it usually hits before the allotted time -- the smart money is on Veeva Systems' achieving this goal and performing well through the end of the decade and beyond.
The company's shares are trading for $216 apiece, so $1,000 can get investors around four of them. That's money well spent.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Veeva Systems. The Motley Fool has a disclosure policy .
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