"Three things cannot be long hidden: the Sun, the Moon, and the Truth."-Buddha
With Veeva (NYSE:VEEV) reporting earnings tonight, we thought now would be a good time to share a list of questions that management and the sell-side should try to answer. Getting answers to these questions is infinitely more relevant to the future valuation of the business than the guaranteed consensus (Veeva's six underwriters at this point) 'headline beat' the company will report, which by the way, we view as tantamount to celebrating the fact that Michael Jordan is capable of jumping over a midget. Based on what we have seen so far, we are not crossing our fingers on this, but you never know.
Questions for Veeva Management:
- Realized CRM ASP @ $1,000 vs. $4,000 in 'management projections': While the underwriters seem reluctant to do the simple math, we have calculated your average realized selling price across your entire CRM subscriber base. This number is close to $1,000. Do you plan on disclosing this number going forward?
- ASP Evolution in EM vs. developed markets: We know pharma rep counts are on the decline in developed markets. We also know they are on the rise in emerging markets. Your penetration in the former is high, while your penetration in the latter is much lower. In China for example, we know the ASP per LS CRM seat is 1/3 to 1/2 what it is in the United States. How should we model that impact on ASPs going forward (12-24 months)?
- TAM based on the above answers, how is CRM TAM still $2bln: Please explain how you get to such a TAM for CRM. After extensive research, a best-case scenario (albeit several years down the road) for add-ons would seem to translate into a $1,500 ASP across your user base. This is a gap of $1.4 billion (based on our conservative estimate of 400k reps in the top 50) that we are having a very hard time reconciling. Is there something we are missing here you'd like to share? In this highly transparent market it is hard to grasp how such a massive discrepancy could exist!
- How big is Veeva Vault's addressable market: Following up on the previous question, can you clarify how you sized the LS Reg Doc Mgmt market that your Vault product is targeting? You have publicly stated that this market is 'at least as big as CRM'. Are we to assume that means CRM today, or what CRM fully loaded could be one day in the distant future?
Questions for Deutsche Bank Equity Research:
What changed in DB's TAM assumptions for CRM, ECM and MDM, which could decrease TAM by 60-70% in 2 months: -a) In your Veeva initiation report you sized the 2013 LS CRM TAM at $1.9 billion. In your transfer of coverage report (2 months later) you sized the TAM at $675 million, and went on to state that, "Veeva estimates a total CRM TAM at closer to $2 billion." Can you explain what was wrong with your initial report analysis that your sizing coincidentally agreed with what now is solely being attributed to Veeva?
b) In your initiation report you wrote, "we estimate Veeva's TAM to reach $8.6bn by 2020 from ~$5bn in 2013, an 8% CAGR." Two months later in your transfer of coverage report you size ECM at $1.2 billion and MDM at $500 million. Add these to your CRM and you get $2.3 billion TAM. Can you explain how the market according to your estimates shrunk by over 50% in less than two months?
c) Based on the above answers can you also explain how a greater than 50% reduction in addressable market size only translated into a $3 decrease in your share price target?
2. Do you understand how subscription revenue models work:
Your last report modeled basically flat sequential subscription revenue growth on the back of a quarter with 22% subscription revenue growth. We understand the need to set the bar low for clients, but this is just a little too much. Can you mathematically explain how this happens unless you were modeling significant subscription cancellations?
a) Following up on the previous question, your most recent report also stated that, "Veeva's first post-IPO quarter (fiscal Q3 2014, ended October 31, 2013) was solid relative to high Street expectations." Can you please explain how flat sequential growth amounts to high Street expectations for a company with this multiple?
3. Lastly, in your most recent report you stated that Veeva was being weighed down due to a, "short report from November 2013 that questioned Veeva's TAM analysis as well as the risks of building on SFDC's platform." To be clear, the analysis in question was largely provided by DB, as Veeva has provided no analysis yet. Can you explain how you can make such a statement?
Disclosure: I am short VEEV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Long CRM and Cegedim (OTC:CGMJF)