- A recent multiple territory top 20 Pharma CRM competitive displacement is further evidence of major cracks in an already well documented overhyped story.
- Publicly available feedback indicates customer satisfaction, much like Veeva's TAM, is also overstated.
- All the events around this IPO raise serious questions regarding timing and adequacy of disclosures, omissions of material risks, and serious Chinese wall related conflicts on Wall Street.
Veeva Systems: A Top 20 Competitive Displacement, Customer Dissatisfaction, DB Markets Research, and Strange Coincidences
If recent actions are any indicator, it appears everyone involved with the Veeva (NYSE:VEEV) IPO simply has decided the time has come to drop CRM and move onto Veeva's other new and exciting product lines. Basically, let's just forget the debate around the 95% of revenue business and focus on the less than 5% stuff. Granted we don't think any of the institutions that are long this stock realized they were going to become venture capitalists overnight, but that appears to be what Veeva's underwriters want them to do. Anyway, with that in mind, here is some real 'research' for investors in Veeva.
Veeva Top 20 Competitive Displacement 2.0
Our initial Veeva short thesis centered around the finite and shrinking nature of the life sciences CRM market. We concluded that the stock was a great short even if Veeva could eventually capture every seat in the top 50. However, as is often the case, we quickly realized that our LS CRM landslide assumption was a little too presumptuous on our part. When we discovered the Roche/Genentech SFDC customization move (material news which Veeva did not feel compelled to share until we broke it here on Seeking Alpha), we quickly concluded that there would be some top 50 pharma CRM seats that would never be available to Veeva. This realization led us to map out the entire top 50 by sales rep count, geography, and CRM vendor. After which we developed a very firm grasp of the competitive environment in the LS CRM space. We discovered the pharmas who had passed on Veeva for the longest time, and also learned more about their IT vendor relationships. We also came across examples of split geographies (Merck deploying Oracle in 40 countries despite already being on Veeva is one of those) as well as some head-to-head losses against Cegedim for business you'd expect Veeva to win. Suffice to say we quickly discovered this was a much more competitive market than originally thought. The only thing we did not come across in this process was an example of top 50 pharma deploying Veeva CRM, and then choosing to turn around replace it with a competitor's solution (non-custom sfdc build). Not exactly surprising as Veeva has been in a land grab phase, but then again not exactly inconceivable with 1-year contracts and a very competitive market. Well, that is no longer the case. As you can see from the below screen shot, Interactive Medica has recently displaced a Veeva system in multiple territories of a top 20 pharma.
Suffice to say when we discovered this we were pretty shocked. The top 20 displacement element was more than enough to catch our eye, but the fact that the displacement was to a smaller competitor was even more surprising. Veeva is clearly a lot more vulnerable than we initially thought.
This is also interesting because Veeva's CEO has repeatedly said:
"Customer dissatisfaction is my opportunity."-Veeva CEO
Well, it would appear that in this case the exact opposite is true. Customer dissatisfaction is now clearly Veeva's competitors' opportunity.
Veeva is no longer the young upstart in this space, even if they still want to market themselves in that way from a PR perspective. They are now the big dog/evil empire that everyone will be coming after, and the IT provider pharma reps seemingly love to hate.
To fully grasp this shift you need to simply spend some time on Cafepharma.com and read some of the Veeva related threads in the boards of the top 20 pharma companies.
One that jumps out is the rather blunt Bohringer Ingelheim 'Veeva Sucks' thread. This thread started in July of 2013 and is still going strong with the total posts now up to 70.
07-12-2013, 10:13 PM
Re: Veeva Sucks
I agree!! I never thought I would say this but I miss Vista!
09-10-2013, 09:28 PM
Re: Veeva Sucks
You're right. They claim Veeva makes us more "customer-centric." How? By re-packaging the same presentations we used to have on paper? By making it harder to find a doc's prescribing patterns? No, they now can tell, if they want to take the time to find out, how long you spent on each screen, how long was the time between the presentations and the signature, and probably tons of other stuff we can't even begin to imagine. Bells and whistles, that's all.
03-27-2014, 11:33 AM
Re: Veeva Sucks
I only use this when my manager is with me. Every time I take it out I cringe. Not only is it embarrassing but horrible technology and has 0 value.
I would even say that it decreases value since docs hate it and half of them find it ridiculous. The other half are more interested in asking questions about the technology than listening to our messages. Either way its a no win situation. Who was responsible for bringing this here? Sales, Marketing, training?
And then you have comments like these on a recent Bayer thread
03-31-2014, 12:31 PM
Re: Why did JA in PA leave WH division
They keep saying the sales model has changed, but nothing has really changed. Yes, higher target bonus, but that means nothing with crazy quotas. It's the same old big pharma crap. All these spread sheets, BS LIFT program, Veeva, etc., just proves that. They are quickly driving Essure into the ground. And as soon as Levosert launches, Mirena and Skyla will be old news.
03-31-2014, 08:05 PM
Re: Why did JA in PA leave WH division
If you have not perceived change, my guess is you have a Legacy Bayer manager. I have not once been asked to fill out a spreadsheet. I no longer have a call R&F goal. I call on accounts and not individuals. I will continue to pound them with feedback that Veeva is a joke and completely inaccurate. It will take time but I am confident that is next to change. What is your day like? Sounds like it sucks. This job depends entirely on your manager.
For those looking for more of this rep sounding off, there is the Eli Lilly thread titled, "New CRM System- Is this how we feel?". This thread was started in response to an award Eli Lilly won from Information Week for their move to Veeva CRM. Clearly the field is not nearly as happy with Veeva or the Ipad as the IT world is. There are plenty more of these tidbits online, but heaven forbid someone researching this would actually go out and look for rep feedback to assess customer satisfaction or the 'airtight' nature of Veeva's CRM story.And then you have comments like these on a recent Bayer thread
Anyway, you get our point. There may be a lot of consultants and CIO's who are happy with Veeva, but the picture from the sales rep end is not nearly as rosy. Some of this is probably a blowback as reps resist change, but when you consider how current these threads are and the fact that these people are actually going online to vent about this, well, a decision to switch off of Veeva to a smaller competitor no longer seems like such a shocker.
Deutsche Bank Markets Research on Veeva
It is now pretty clear that Veeva's underwriters are working overtime to shift the conversation over Veeva to Vault and Networks potential. We admire their efforts, but as has been the case along their execution leaves much to be desired.
From the first page of DB'S new Veeva note:
Reaffirm BUY Rating and Lowering PT to $34
Veeva shares are now 53% below their $46 peak and are down by ~35% since the high-valuation software started rolling over in early March. At $280m our conservative FY15 revenue estimate and $63.2m estimated FCF, Veeva shares seem reasonably priced at 8.5x 2015 sales/ 33x FCF, given the growth profile (79% y/y subscription billings growth in 4QF14), although we're lowering our PT to $34 (13x FY15 revenues) given the re-rating of the broader peer group.
Usually we need to read at least a few pages before some glaring error or faulty analysis jumps out at us, but DB managed to accomplish this task by page one. The statement that,
" Veeva shares seem reasonably priced at 8.5x 2015 sales/33x FCF, given the growth profile (79% y/y subscription billings growth in 4QF14), although we're lowering our PT to $34 (13x FY15 revenues) given the re-rating of the broader peer group"
was just too much to ignore. Although we will point out, it is just about the first time we have agreed with any of the Veeva analysts on something. Yes we do concur; Veeva shares would seem more reasonably priced at 8.5x 2015 sales.
The only problem with that statement is that such a valuation is appx 30% below where Veeva is currently trading!
Based on DB's $280 million estimate Veeva is actually trading at 12x FY2015 estimated sales. Of course you can figure this error out by page 2 of their report (as they are clearly using a 145mln share count), but why bother with proof reading when you are trying to spin your way out of a mess. At their $34 price target, Veeva would trade at 17.6x FY2015 estimated sales and not 13x.
But for those looking for a more reasonably valued tech stock, we suggest comparing Veeva to Linkedin (NYSE:LNKD). With 25% adj EBITDA margins and a forecast consensus top-line of 38.4% for 2014, Linkedin currently trades at 8.9x forward EV/Sales. This is pretty shocking considering managment makes Veeva Crm's future sound something more like the Linkedin of Pharma. What credible investor wouldn't rather own Linkedin's propreitary global scalable platform over Veeva's value added reseller driven model at this current disparity. Veeva, with its 26% adj EBITDA margins and forecast 30% top-line growth rate, should be trading at a meaningful discount to Linkedin instead of its current signficant premium, no questions asked.
Of course basic math and valuation mistakes are not the only problem here.
Two other things that caught our eye
- Vault TAM- They put this at $1.5 billion which we guess is an accomplishment for us even if it is still way off, but their logic here is quite amusing. They found multiple sources that put the TAM below a $1 billion, and one source that put it at $1.5 billion. So what TAM do they use? The $1.5 billion one of course. Forget the fact that we have spoken to a over a dozen people in this space and still not found a single one that would say LS ECM is at least $1 billion. We also found DB's comments regarding Nextdocs being 20% penetrated in the top 200 pharma interesting from a TAM perspective considering our research indicates their revenues are less than $50 million. Also, as has been the case with everything else, we got no comments addressing material points we have raised regarding Vault TAM in multiple reports.
- Oracle could acquire Veeva-
"Likewise, this made us wonder if Oracle will eventually put Veeva on its acquisition target list, as a means to scale its cloud suite, compete more effectively against SFDC in the cloud CRM space, and augment its Phase Forward CTMS system (acquired in 2010) that competes with Medidata." DB on Veev, April 7, 2014(pg 7)
This quote left us wondering whether these analysts understand anything at all about this space. We'd really like to know what Oracle would be buying here? A company that derives 95% of its revenue being a value added re-seller on the Force.com platform. If Larry Ellison has constantly taken shots at SFDC being nothing more than a thin layer on top of Oracle, what exactly do you think his opinion of a contractually obligated SFDC Force.com value added re-seller would be? If Oracle wants to make a move here they won't waste their time with Veeva, they will simply buy SFDC. Because at this point buying Veeva does nothing as it immediately turns SFDC into a direct competitor. A critical component of the SFDC relationship with Veeva is about being able to sell their other services into these platform customers. On the other hand we will give DB credit for acknowledging that Medidata (NASDAQ:MDSO) might become a Vault competitor soon. Considering their penetration into clinical cloud and the cash on hand, we don't think it will be long before they make a push into Veeva's turf to quell what we can imagine will soon be questions regarding the penetration of their TAM.
Honestly, this report is simply embarrassing. Careless valuation errors (not the first time from DB as we still firmly believe they are the main culprits behind this TAM debacle with their Cegedim math mistakes) and faulty analysis are bad enough, but to have this happen when you clearly know your work is going to be put under the microscope is simply inexcusable. If we were Veeva, we'd kindly ask these analysts to stop publishing on us as they are doing more bad than good.
Strange IPO Coincidences
- Veeva's IPO was timed to coincide with significant penetration in the CRM market and a large decline in their revenue growth rate.
- The IPO was also timed to directly precede a material and quite unfavorable modification of the Salesforce.com contract.
- Throughout the entire offering period and up until we called attention to it, Veeva happily promoted Genentech as a customer on their website. This was despite the fact that they had ceased being a customer as of July 31, 2013. Furthermore, their S-1 included ZERO disclosures regarding the risks of losing pharma customers to custom built solutions on the SFDC force.com platform. A risk that is quite material for a value added reseller that derives 95% of its revenue from a product built on top of this platform, and one they clearly were already aware of.
- Insiders have published multiple articles in the media that compare Veeva's vertically focused SAAS business to horizontal SAAS models without clarifying that Veeva is not a pure vertical. To say that verticals are the new horizontals is extremely misleading when said vertical is entirely dependent on a re-seller agreement with the worlds leading cloud based horizontal CRM provider. "Hey, our model is far superior to that of horizontal SAAS players as long as the leading horizontal allows us to use their infrastructure, IP, and established credibility to build our entire business."
- The underwriters waived Veeva's lock-up restrictions to allow for a secondary a mere few weeks before the lock-up was set to expire. Two days after this secondary closed SFDC announced their new vertical focused strategy (Todd Pierce, the former Genentech CIO, will be heading up their Life Sciences/Healthcare Vertical). The underwriters collected $11+ million in fees for this work.
Does this all strike you as a coincidence?
If you answered yes, you have a bright future as a sells-side analyst covering Veeva.
Suhail Capital Limited is an exempted company registered in the Cayman Islands ("Suhail Capital") is an investment advisor to funds that actively participate in the buying and selling securities and other financial instruments.
You should assume that as of the publication date of this report, Suhail Capital (possibly along with or through our partners, affiliates, employees, and/or consultants) along with our clients and/or investors and/or their clients and/or investors has a short position in Veeva Systems Inc. "Veeva" (and/or options, swaps, and other derivatives related to the stock), and therefore stands to realize significant gains in the event that the price of Veeva should decline. You should also assume that as of the publication date of this report, Suhail Capital (possibly along with or through our partners, affiliates, employees, and/or consultants) along with our clients and/or investors and/or their clients and/or investors has a long position in Salesforce.com, Cegedim and any other publicly listed company in this report (and/or options, swaps, and other derivatives related to these stocks) , and therefore stands to realize significant gains in the event that the price of Salesforce.com, Cegedim or any other company listed should increase.
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Disclosure: I am short VEEV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: LONG CGMJF, CRM, LNKD