Veeva Systems Inc. (VEEV) and Zendesk, Inc. (ZEN) are two prominent companies that offer cloud-based software services. Pleasanton, Calif.-based VEEV provides cloud-based software solutions for the global life sciences industry. It offers enterprise applications, multi-channel platforms, customer relationships, and content management solutions designed to meet customer needs and strategic business functions, from R&D to commercialization. In comparison, ZEN, in San Francisco, delivers software-as-a-service (SaaS) solutions to organizations. It provides a single customer service interface to organizations to manage their one-on-one customer interactions and track and predict common questions.
After achieving high productivity from remote working structures, companies are increasingly migrating their processes to cloud platforms to facilitate hybrid working. This, along with the continuing digital transformation, should drive the cloud computing market’s growth. The global cloud computing market is expected to grow at a 16.3% CAGR to reach $947.30 billion by 2026. So, both VEEV and ZEN should benefit.
ZEN is a winner with 5.3% share price gains, versus VEEV’s 2.2% returns over the past month. But which of these stocks is a better pick now? Let’s find out.
Click here to check out our Software Industry Report for 2022
Latest Developments
On Dec. 13, 2021, VEEV acquired Veracity Logic, a provider of cloud software for randomization and trial supply management (RTSM). VEEV will gain access to Veracity Logic’s industry-leading software and services and expand its reach by helping companies simplify complex processes and expedite clinical trials.
On Oct. 28, 2021, ZEN agreed to acquire Momentive Global Inc. (MNTV), an experienced management company that offers cloud-based software in brand insights, market insights, and a suite of paid back-end programs. By acquiring MNTV’s iconic SurveyMonkey brand and its market research and insights products, both companies expect to create a powerful new Customer Intelligence company. This acquisition should accelerate ZEN’s revenue plan to $3.5 billion in 2024.
Recent Financial Results
VEEV’s total revenues for its fiscal 2022 first quarter, ended Oct. 31, 2021, increased 26.1% year-over-year to $476.11 million. The company’s non-GAAP gross profit came in at $358.60 million, representing a 26.1% rise from the prior-year period. Its non-GAAP operating income was $199.45 million, up 28.2% from the prior-year period. While its non-GAAP net income increased 26% year-over-year to $158.21 million, its non-GAAP EPS increased 24.4% to $0.97. The company had $1.15 billion in cash and cash equivalents as of Oct. 31, 2021.
For its fiscal year 2021 third quarter, ended Sept. 30, 2021, ZEN’s revenue increased 32.5% year-over-year to $346.97 million. The company’s non-GAAP gross profit came in at $283.78 million, up 37.6% from the prior-year period. Its non-GAAP operating income was $26.97 million, representing an 8.2% rise from the year-ago period. ZEN’s non-GAAP net income came in at $21.69 million, indicating a 2.8% year-over-year improvement. And its non-GAAP EPS remained unchanged from the prior-year period at $0.17. The company had $532.52 million in cash and cash equivalents as of Sept. 30, 2021.
Past and Expected Financial Performance
VEEV’s tangible book value and total assets have increased at CAGRs of 29.9% and 34.1%, respectively, over the past three years.
Analysts expect VEEV’s EPS to rise 25.5% year-over-year in its fiscal 2022 ended Jan. 31, 2022, and 6.5% in fiscal 2023. Its revenue is expected to grow 25% year-over-year in fiscal 2022 and 17.7% in fiscal 2023. And the company’s EPS is expected to grow at a 15.8% rate per annum over the next five years.
In comparison, ZEN’s tangible book value has grown at a 0.9% CAGR over the past three years. The company’s total assets have grown at a 24.5% CAGR over the past three years.
ZEN’s EPS is expected to rise 25% year-over-year in its fiscal 2021, ended Dec. 31, 2021, and 35.4% in fiscal 2022. Its revenue is expected to grow 29.5% year-over-year in fiscal 2021 and 26.6% in fiscal 2022. Analysts expect the company’s EPS to grow at a 29.9% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, ZEN is currently trading at 5.77x, which is 40.1% higher than VEEV’s 4.12x. And in terms of forward EV/EBITDA, VEEV’s 42.98x compares with ZEN’s 86.26x.
Profitability
VEEV’s trailing-12-month revenue is almost 1.4 times ZEN’s. VEEV is also more profitable, with a 24.6% net income margin versus ZEN’s negative value.
Furthermore, VEEV’s ROE, ROA, and ROTC of 17.8%, 10.2%, and 12.1%, respectively, compare with ZEN’s negative values.
POWR Ratings
While VEEV has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, ZEN has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both VEEV and ZEN have a B grade for Growth. VEEV’s trailing-12-month revenue grew 27.7% year-over-year, while ZEN’s revenue for the same period grew 27.8%.
VEEV has an A grade for Quality, which is consistent with its higher-than-industry profitability ratios. And its 27.5% trailing-12-month EBIT margin is 1185.9% higher than the 2.1% industry average. ZEN’s C grade for Quality is in sync with its negative EBIT margin.
Among the 87 stocks in the Medical - Services industry, VEEV is ranked #27.
ZEN is ranked #80 of 165 stocks in the Software - Application industry.
Beyond what we have stated above, our POWR Ratings system has also rated VEEV and ZEN for Value, Sentiment, Momentum, and Stability. Get all VEEV ratings here. Also, click here to see the additional POWR Ratings for ZEN.
The Winner
Growing demand for cloud platforms should benefit both VEEV and ZEN. However, higher profitability and relatively lower valuations make VEEV a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Services industry, and here for those in the Software - Application industry.
Click here to checkout our Healthcare Sector Report for 2022
VEEV shares were trading at $233.55 per share on Thursday afternoon, down $3.11 (-1.31%). Year-to-date, VEEV has declined -8.58%, versus a -5.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
Veeva Systems vs. Zendesk: Which Cloud Stock is a Better Buy? StockNews.com
