Veeva Systems Inc (VEEV): An IPO Loved by Hedge Funds

Initial Public Offerings (IPOs) can be an ideal way for investors to make a quick profit, especially if the company operates in a hot industry that garners a lot of market attention. For stocks that investors hold on to after their first day of trading, the opportunity could be even more interesting, as the shares potentially offer a fundamental growth story longer-term. We believe Veeva Systems Inc (NYSE:VEEV) could be one of those opportunities.

During the fourth quarter of 2013, many hedge funds bought new Class A shares of Veeva Systems, including Scott Fine and Peter Richards Empire Capital Management (who, with a 6% stake, is the sixth largest shareholder), Christopher Lord‘s Criterion Capital, Joe DiMenna‘s Zweig Dimenna Partners, and Brian Taylor‘s Pine River Capital Management.

Pine River Capital Management

Veeva Systems Inc (NYSE:VEEV) is a $4.4 billion market capitalization healthcare technology company that provides cloud-based software solutions to the biopharmaceutical (life sciences) industry for managing their content as well as relationships with customers and other external parties. Unlike larger peers salesforce.com, inc. (NYSE:CRM) or Oracle Corporation (NYSE:ORCL), Veeva is one of the early companies in the so-called Vertical Software-as-a-Service (SaaS) business, or providing cloud-based services tailored to the needs of specific, specialized markets, which some believe will be popular business models going forward. The company went public on October 16, 2013 by selling 15.0 million shares (including 3.3 million sold by existing owners) at an IPO price of $20, up significantly from an original range of $12-14 range. The stock closed that day at $37.16 and has been volatile, but is basically flat versus its first day’s closing price due to a combination of factors, including a high short interest (44% of float). Moreover, the company showed signs of slowing growth during its third quarter earnings release in early December (reporting year-over-year growth in revenue/billings was 95%/47%, versus 116%/75% in the prior quarter) and news of a lost high-profile client (Genentech).

Veeva Systems Inc (NYSE:VEEV)’s premium valuation reflects its high growth status, with a forward price / revenue and EV/EBITDA multiples of 17.7X (versus 3.6X for its peer group of healthcare technology companies) and 77.8X (versus 16.5X for peers), respectively. Interestingly, despite its growth, the company is profitable (a trait it had maintained even before going public, unlike other pre-IPO healthcare stocks), with margins much higher than the peer group median.

Longer-term, there will always be demand for Veeva Systems’s productivity and compliance solutions by the life sciences industry, which is under pressure to cut costs amid the expiration of patents on brand-name blockbuster drugs while navigating an increasingly complex and global regulatory environment. Hedge funds making a directional bet on the continuation of this secular industry trend could be gaining the appropriate exposure through Veeva Systems Inc (NYSE:VEEV), despite its lofty valuation.

Disclosure: none

Recommended Reading:

Ken Griffin and Citadel Are Bullish on Veeva Systems Inc (VEEV)

Empire Capital Management Adds Veeva Systems Inc (VEEV) to Its Equity Portfolio

Activist Investors are Betting on Allscripts Healthcare Solutions Inc. (MDRX)

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!