VEEV Short Thesis Presentation

8/13/2019 VEEV Short Thesis Presentation

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Veeva Systems Inc: SaaS' Biggest

Bubble and Tech's Best Short

Price Target: $8.00 / share

Ticker: VEEV

1

November 2013

www.suhailcapital.com


2/23

"Men occasionally stumble over the truth, but most of them

pick themselves up and hurry off as if nothing ever happened."

- Winston Churchill

The combination of precise formulas with highly imprecise

assumptions can be used to establish, or rather to justify,

practically any value one wishes, however high, for a really

outstanding issue . . . calculus [gives] speculation the deceptiveguise of investment. Ben Graham

2www.suhailcapital.com


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Background

Veeva is a cloud based CRM provider for the life

sciences industry

Founded in 2007, VEEV has 170 Life Sciences

Customers including 33/50 of Global Pharma Top50, and 115k+ live CRM users according to IDC

2012 Revenue of $129.5 million, +111% YoY

Profitable SaaS with $18.7 million in net incomeand $30.8 million in operating cash flow

3www.suhailcapital.com


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Vertical is the New Horizontal?

Lower Customer Acquisition Cost (CAC): Typical SaaSCAC can be 2x annual contract value vs. as low as fora Vertical SaaS

Industry focus allows for few sales reps and lower

marketing spend, and thus greater capital efficiency Faster and greater market share penetration potential

due to highly focused nature of model

Ability to expand into other product segments and grab

larger piece of the pie (CRM to ECM to MDM to Clinicalto.)

Case in point: In just 4 years Veeva displaced Oracle inLife Sciences CRM

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Vertical is the Same Old Vertical

VeevasCAC was significantly lower because they built their CRM on top of the leadingHorizontals Platform. Thus, Vertical is the new Horizontal only if the global leader in cloud

based CRM is getting a cut of your sub revenue. Otherwise CAC would have been much

higher as every large enterprise would not have had the comfort of knowing they were

essentially relying on the leading cloud CRMs technology and infrastructure which has been

developed over the past decade.

With fast penetration (30% of global reps and pretty much entire pie in US market) comessaturation and the need for new avenues for revenue growth. Without a best in class

horizontal behind it, Veeva has had a very tough time gaining any meaningful traction in new

areas like ECM and MDM.

Being a Vertical means that there are other specialists doing the same thing in Life Sciences.

NextDocs based of Sharepoint in ECM is one. Medidata in Clinical Development. Reltio in

MDM. If the strength of your pitch in CRM was all we do is life sciences cloud CRM, then how

does your pitch in these segments work against the existing focused vertical providerssaying the same thing?

VeevasQ2 annual revenue run rate equals .5% of Oracle revenues. Declining reps, tightening

budgets, and falling asps due to on demand have made this a market they probably dont

care too much about right now. Its a small vertical for a reason. If that were to change, the

horizontals would look at it in a different strategic manner.



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TAM (continued)

Perception:Veeva's Life Sciences CRM Vertical whichaccounted for 98.5% of 2012 revenue is a $2 billionTAM today in which they have achieved only singledigit penetration.

Reality:A bottom-up analysis confirms this market isno greater than $840mln. If you account for the seculardecline in pharma reps as well as the much lower ASP'sin on-demand CRM, it could end up being as small as$500 million. Thus, they have already achievedsubstantial penetration as measured by active usersand revenue market share.



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2011 CRM Market Share Numbers

Cegedim had 37% (based onpublic disclosures)marketshare at the end of 2011

Weve estimated Cegedims

CRM life sciences revenueto account for approx.35-40% of their total CRM/SDdiv rev in 2012.(MktResearch, Onekey,Compliance, and other

services make up the other60%)



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Q2 2013 Estimated CRM Market Share


Food for thought: If 66% of global life sciences (i.e. Cegedim +Veeva)CRM/SFA pie is worth $440 million can the remaining 34%be worth $1.56 billion? That is, $250 million (40% of Ceg TTMCRM/SD revenue)+ $190 million (Veeva calendar Q2 2013 CRMrevenue annualized)+ X= $2 billion???


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Underwriter TAM Assumptions

Just look at their white paper financial model from 2 years ago on why an on-premise life sciences customershould switch to a SaaS CRM.

These numbers work out to an average total cost of $146 per seat a month ($1,750 per annum) over five years.Multiply this by the entire global rep count of 403k and you get $700 million TAM. Now take Veeva's Q2 revenueand annualize that number and then divide by 115,000 users. What you get is a spot on match as far as totalrevenue per seat.

This means the co-lead underwriters TAM dollar target of $4,500 would work out to a 60% increase over thelegacy on-premise CRM solution average annual price of $2,840 that they have displaced



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The Glass Ceiling on Veeva

Perception: Veeva's early profitability as SaaS company is remarkable andevidence of the appeal of the industry cloud model and warrants a premiummultiple. Vertical is the new horizontal!

Reality:Veeva CRM solution is a white-labled Salesforce.com product. Basically,vertical is the new horizontal, if you have direct access to the leading horizontals

entire platform. This strategy is what allowed them to achieve such capitalefficiency and profitability. However, as a vertical CRM provider their core marketis by definition finite, and in this case, also specifically limited by contract. Thistype of business model has always translated into a market discount EV/Salesmultiple to the horizontal/platform players. Veeva's forward multiple is the highestin the space of any horizontal or vertical SaaS provider.

A leading CRM life sciences consultant on Veeva achieving avg annual revenue of$4,500/seat That's impossible. And even if it was remotely possible, then thehorizontals would then immediately target the entire the market."



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Product Mix/ Penetration Perception:Veeva Vault and Veeva Network are two new product offerings in ECM and MDM

with huge future potential. Veeva has mastered this layer-cake approach, taking a slice of a number of horizontal

solutions (i.e. CRM, content management, marketing automation), and focusing them

specifically for the deep regulatory issues of the life sciences industry. In fact, in just one

year, the company has twice rolled out entirely new functionality that entire companies

were once built upon. Its Veeva Vault content management solution was quickly followed

by its Veeva Network marketing and data platform-all built from scratch and deployed inthe span of just 18 months.-Gordon Ritter, Emergence Capital, Vertical is the New

Horizontal

Reality:After 2.5 years Vault has generated less than $5 million in aggregate revenue while

accounting for the bulk of annual R&D spend, and is described by industry professionals as

the completely wrong product strategy in an already highly competitive ECM space with both

horizontal and vertical players. (there are very good reasons entire companies ARE built

around this functionality)Meanwhile, Veeva Network (part one)was launched in 2012 asCustomer Interaction Repository(CIR), and quickly shot down by Pfizer at the same user

conference. Veeva Network (part deux)was launched in May of this year as a LS Cloud MDM.

(its current product prospects are covered in our report). Veeva CRM Approved Email

generated zero revenue in the six months ended July 31, 2013.

For every one of our failures, we had spreadsheets that looked awesome- Scott Cook,

Intuit Founder www.suhailcapital.com 13
http://techcrunch.com/2012/07/28/vertical-is-the-new-horizontal-how-the-cloud-makes-domain-expertise-more-valuable-in-the-enterprise/http://techcrunch.com/2012/07/28/vertical-is-the-new-horizontal-how-the-cloud-makes-domain-expertise-more-valuable-in-the-enterprise/http://techcrunch.com/2012/07/28/vertical-is-the-new-horizontal-how-the-cloud-makes-domain-expertise-more-valuable-in-the-enterprise/http://techcrunch.com/2012/07/28/vertical-is-the-new-horizontal-how-the-cloud-makes-domain-expertise-more-valuable-in-the-enterprise/


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The IPO Process

Perception:This was a well managed IPO and the big success story of 2013 in the software space. The stock's

current $6.1 billion dollar market capitalization validates this.

Reality:This was a rushed IPO complete with misleading disclosures and clear evidence of remerging IB/Equity

Research conflicts. The fact that it is trading where it is at is reflection of the poor state of affairs in the IPO

market these days. Beyond buzz-words and sound bites that demonstrate a clear lack of understanding of the

business, nobody has bothered to put this name under the microscope yet. This is simply shocking considering

the coverage the name has gotten in the press, and its current market cap.

Veeva Systemsis at the heart of two explosive megatrends: the cloud and life sciences. So it should be no

surprise that the company had little trouble with its IPO. In todays trading, the shares are up a sizzling 80%. -

Forbes article

This is how momentum buzz-word investing works. Cloud is hot. Life sciences is hot. This company has

exposure to both. So, it is sizzling.

Am I right to think of this company as essentially a company whose software manages drug trials?-

Bloomberg Interviewer to Gordon Ritter

Veeva Systems is the Next Salesforce-Venturebeat

Vertical is the New Horizontal- Techcrunch

Was Veeva a Better Deal than Twitter?-Fortune

http://www.veeva.com/http://www.forbes.com/sites/tomtaulli/2013/10/16/veeva-ceo-customer-dissatisfaction-is-my-opportunity/http://venturebeat.com/2013/10/16/gordon-ritter-veeva-systems-is-the-next-salesforce/http://techcrunch.com/2012/07/28/vertical-is-the-new-horizontal-how-the-cloud-makes-domain-expertise-more-valuable-in-the-enterprise/http://finance.fortune.cnn.com/2013/10/17/veeva-vc-twitter/http://finance.fortune.cnn.com/2013/10/17/veeva-vc-twitter/http://techcrunch.com/2012/07/28/vertical-is-the-new-horizontal-how-the-cloud-makes-domain-expertise-more-valuable-in-the-enterprise/http://venturebeat.com/2013/10/16/gordon-ritter-veeva-systems-is-the-next-salesforce/http://www.forbes.com/sites/tomtaulli/2013/10/16/veeva-ceo-customer-dissatisfaction-is-my-opportunity/http://www.forbes.com/sites/tomtaulli/2013/10/16/veeva-ceo-customer-dissatisfaction-is-my-opportunity/http://www.veeva.com/http://www.veeva.com/http://www.veeva.com/


15/23

Cloudy Coverage

"Discounted cash flow to us is sort of like the Hubble telescopeyou turn ita fraction of an inch and youre in a different galaxy. There are just so many

variables in this kind of an analysisthats not for us."- Curtis Jensen (Third

Avenue)

Co-Lead Underwriter #1s Launch DCF: 2028 Veeva Revenues of $3.7 billion.

$1.2 billion CRM (3x what Cegedim+Veeva derive from current 66% share)+

$900 million Vault/Network (the future is


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Fundamental Contradictions

From a non-lead underwriters launch report:Webelieve thetransformational nature of VeevasCRM solution is not accuratelycaptured within market assessments that fail to incorporate the growthand revenue potential of solutions such as iRep and Approved Email.These relatively new features are pushing the annual subscription dollarsper sales representative past the levels that Siebel and Cegedim have

historically seen. Same report few pages later:Wefundamentally believe Veeva offers a

noticeable advantage in terms of both cost savings and functionalityversus its key competitors, and we believe these factors will continue tosustain the companys growth fo/r the next several years.

Confused? Note Approved Email had zero revenue at end of Q2 as per

Veeva disclosure in SEC correspondance. Also, in a mobile world, wed liketo think that Irep is core SFA functionality for Veevaspharma sales repusers. There are plenty more of these for those of you that end up taking aclose look.



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Veeva vs Peers

The Valuation case against Veeva based on a direct comparablewith French publicly listed competitor Cegedim or Horizontal CRMleader and partner Salesforce.com is overwhelming.

Cegedim, VeevasFrench listed industry competitor (36% LS CRMGlobal Mkt Share), has a current market value of EUR 275 million,

and a total enterprise value of EUR 775 million. In 2012, theygenerated EUR 922 million of revenue and EUR 154 million ofEBITDA. So, they trade at an EV/Sales multiples of 0.8x and anEV/EBITDA multiple of 5x.

Veeva trades at 35x ttm EV/Sales and 157x ttm EV/EBITDA. Thedisparity is extremely high.

Based on this gap, we would argue that Veeva could afford to payup to 3x the implied current value of all of Cegedim, and thensimply shut it down. AOL/Time Warner memories anyone?



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Value in Veeva?

At TTM CRM revenue of roughly $250 million with 140k+ current usersCegedim's 36% life sciences SFA market share is basically being given awayby the market. By our estimate, the same piece of pie in Veeva's handscosts 30x more. Now you know why Cegedim doesn't make it into anylaunch report comparable tables.

Here is what Veeva looks like when it is compared to CRM subscription

revenue king Salesforce.com.

This valuation gap can only be explained by one word: BUBBLE!


Key Metrics Veeva Salesforce.comTTM Revenue $168 million $3.47 billionTTM Subscription Revenue $106 million $3.27 billionEnterprise Value $5.8 billion $34.8 billionEV/Rev 35x 10xEV/Sub Rev 55x 11x


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Veeva vs. Life Sciences Industry Clinical

Cloud Leader Medidata Medidata is life sciences industry cloud company

which primarily focuses on clinical trial developmentsoftware.

Like Veeva their model is subscription revenue driven.

In Q2 2013 they generated $56.6 million in subscriberrevenue. That is 66% more than Veeva generated.

Their EV is $2.8 billion. Their EV/Sales ratio is 11x.

Does this make any sense? Note we have been long

this stock (at much lower levels)before and find theirproduct niche to be much more of a true life sciencesvertical play. Our rationale behind this can be found inthe full report.



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SaaS and the Greater IT Spending Pie

Every dollar that moves to SaaS is eliminating multiple dollars in old IT spend.

Every model we have looked at for SaaS companies uses legacy market TAM

assumptions as well as historical CAGRs going forward. This is flat out wrong, but

understandable as visualizing this is not easy. We too had a problem finding great

evidence to support this deflationary theory until we started researching VEEV.

Our deep dive into LS CRM via VEEV provided good evidence to support this thesis.Market is easy to size because of pharma rep data and concentrated nature of

market share amongst 3 companies. Basically, you can see how SaaS transition

here has turned a once premium niche software product into a more commodity

priced solution.

Over the very long run this is good news for SaaS, but in the immediate to medium

term we imagine that Wall Street will really have to start rethinking their financial

models.



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How to play this?

This is what we would describe as a dream short. All the good news inthe world still equates to 65%-80% downside in the share price.

Our fair value is $8 as we are giving them the benefit of the doubt as far astheir growth strategy goes.

Our strategy would be simply short this stock in size and wait for morepeople to start focusing on everything we have raised in this piece versusthe puff coverage that is out there now.

If you are really cautious and worried that this bubble somehow wontpop, you can always pair it with a Salesforce.com long position or aridiculously priced Cegedim to hedge market risk.

There is no way Veevasmarket valuation can continue to maintain itsrelative value versus Salesforce.com, Medidata or Cegedim withoutdrawing a lot more eyeballs. We are 100% certain of that, and in themarket you can very rarely make such a statement!



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We hope you will take the time to read the full 40+ page report which includes loads of details, links,

references to SEC communications, underwriter reports and tons of other evidence to support our

investment thesis

[email protected]

Thank YouDISCLAIMER

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 VeevaSystems 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 and Cegedim (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 Salesforce.com or Cegedim should increase.

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November 2013



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DISCLAIMER (continued)

Suhail Capital strongly recommends that you do your own due diligence before buying or selling any of the securities mentioned in this report.

We intend to continue transacting in the securities of issuers covered in this report for an indefinite period after its publ ication, and we may belong, short, or neutral at any time hereafter regardless of our initial recommendation.

This report expresses our opinion, which we have based upon generally available information, field research, inferences and deductions

through our due diligence and analytical process. To the best of our ability and belief, all information contained herein is accurate and reliable,

and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock

covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented

as is, without warranty of any kind, whether express or implied. Suhail Capital makes no representation, express or implied, as to the

accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of

opinion are subject to change without notice, and Suhail Capital does not undertake to update or supplement this report or any of the

information, analysis and opinion contained in it.

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November 2013


Documents

VEEV Short Thesis Presentation