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I last reviewed Veeva Systems (VEEV) in this December 6, 2024 post at which time the most current financial information was for Q3 and YTD2025. Unfortunately, Veeva is approaching fair valuation with the share price surge following the release of Q4 and FY2025 results after the March 5, 2025 market close.
Let's have a look at its valuation.
Business Overview
VEEV is the leading provider of industry cloud solutions for the global life sciences industry. Its offerings span cloud software, data, and business consulting and are designed to meet customers' unique needs and their most strategic business functions ranging from R&D through commercialization. These solutions help life sciences companies develop and bring products to market faster and more efficiently, market and sell more effectively, and maintain compliance with government regulations.
The best way to learn about the company is to review the company's website and Part 1 in the most recent Form 10-K found in the SEC Filings section of the company's website.
Financial Review
Q4 and FY2025
Material related to the Q4 and FY2025 earnings release is accessible here.
VEEV reports the following annual OCF over the past few years.
Operating Cash Flow (OCF), Free Cash Flow (FCF), and CAPEX
VEEV deducts CAPEX from OCF to calculate its FCF. In recent posts, however, I explain my rationale for also deducting share-based compensation (SBC) from a company's OCF.
The following reflects VEEV's FCF using the conventional and modified methods.
VEEV issues a considerable amount of SBC. When we deduct SBC, the FCF/share is much less robust than when it is excluded!
Q1 and FY2026 Outlook
The following reflect VEEV's Q1 and FY2026 outlook.
Risk Assessment
VEEV has no debt to rate.
At FYE2025, VEEV had ~$1.119B in cash and cash equivalents and ~$4.031B in short-term investments for a total of ~$5.15B versus $0.703B and $3.324B at FYE2024.
Its total liabilities at FYE2025 were ~$1.507B of which ~$1.274B was deferred revenue leaving ~$0.233B in all other liabilities; deferred revenue represents funds received from clients in advance of services being provided. Total liabilities at FYE2024 were ~$1.266B of which ~$1.050B was deferred revenue leaving ~$0.216B in all other liabilities
VEEV satisfies my risk-averse investor profile.
Dividends and Dividend Yield
VEEV does not distribute a dividend.
The weighted average number of diluted shares outstanding (in millions rounded) in FY2021 - 2024 is 160.7, 162.2, 162.4, 163.5, and 165.2.
VEEV typically does not repurchase shares to offset the shares it issues annually as part of its employee compensation structure.
Valuation
For the sake of brevity, my prior valuation calculations can be accessed by clicking on this link.
Broker earnings estimates are currently under revision. At the moment, however, the following are VEEV's forward adjusted diluted PE levels using the current broker estimates and a ~$242 share price.
- FY2026 - 31 brokers - mean of $7.11 and low/high of $5.06 - $7.45. Using the mean estimate, the forward adjusted diluted PE is ~34.1.
- FY2027 - 25 brokers - mean of $7.88 and low/high of $5.87 - $8.55. Using the mean estimate, the forward adjusted diluted PE is ~30.7.
- FY2028 - 6 brokers - mean of $8.96 and low/high of $8.46 - $9.39. Using the mean estimate, the forward adjusted diluted PE is ~27.
I place no reliance on earnings estimates beyond the current fiscal year (FY2026). Furthermore, the FY2026 earnings estimates are unreliable given that management's adjusted diluted EPS guidance is $7.32 and the low end of the broker estimates is $5.06. I suspect some earnings estimates have not been updated in months.
Furthermore, earnings can be manipulated. Cash flow, while also susceptible to manipulation by management, is somewhat more reliable.
VEEV's FY2026 outlook calls for ~$1.17B of Operating Cash Flow versus ~$1.090B in FY2025. If we estimate that FY2026 annual CAPEX is similar to the last couple of fiscal years, we can conservatively use $30 million to determine FCF.
Under the conventional method of calculating FCF (OCF less CAPEX) we get ~$1.06B.
VEEV does not repurchase shares so being conservative, we can estimate that the weighted average number of diluted shares outstanding in FY2026 will increase by ~2 million shares. In FY2025, the weighted average was ~165.232 million shares so in FY2026, we can anticipate ~167.232 million.
Divide $1.06B of FCF by ~167.232 million shares and we get FCF/share of ~$6.02 versus ~$6.47 in FY2025. With shares currently trading at ~$242, the forward P/FCF is ~40.2.
If we estimate SBC of ~$480 for FY2026 representing an increase of ~$43 million which is consistent with the past couple of fiscal years, we can deduct this amount from the ~$1.06B of FCF calculated under the conventional method. Under the modified method, FCF becomes ~$0.58B. Divide this by ~167.232 million shares and we get FCF/share of ~$3.47 versus ~$3.825 in FY2025. With shares currently trading at ~$242, the forward P/FCF is ~69.7.
VEEV is a good example of the extent to which SBC impacts valuations based on FCF !
Final Thoughts
VEEV was not a top 30 holding when I completed my 2024 Mid Year Portfolio Review. It, however, was my 28th largest holding when I completed my 2024 Year End Portfolio Review.
It continues to generate strong results and I like its long-term outlook. I do not, however, like the extent to which the weighted average number of diluted shares outstanding is increasing.
In my prior post, I mention that VEEV's CEO is on Zoom Communications' (ZM) Board Of Directors; ZM is another company whose increase in the number of outstanding shares is unsustainable. ZM, however, recognizes that it must bring the number of outstanding shares under control; it repurchased a significant number of outstanding shares in FY2025.
VEEV generates strong earnings and cash flow. At some point, VEEV will likely start to repurchase shares. At present, however, reinvesting in the business is probably the best form of capital allocation. The company is continually expanding/improving its product offerings and it invests heavily in R&D (~$0.693B and ~$0.629B in FY2025 and FY2024) as it plans to eliminate the its reliance on Salesforce's (CRM) platform.
NOTE: VEEV is moving from the Salesforce platform to its proprietary CRM system (Veeva Vault CRM) by September 2025; it is choosing to build and utilize its own technology rather than relying on Salesforce for its core CRM functionalities in the life sciences industry.
I intend to increase my VEEV exposure, however, shares currently trade at ~$242 and a fair value is ~$250. This suggests a sub-4% upside before VEEV reaches fair value which is insufficient if the current rate of inflation is ~2% - 3%. I would like to acquire additional shares if the share price retraces to ~$220 or lower. At this level, VEEV's P/FCF using the conventional FCF method of calculation would be ~36.5 (~$220/~$6.02).
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long VEEV.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
