Workday, Inc. (WDAY) and Veeva Systems Inc. (VEEV) are cloud-based applications providers that operate worldwide. While WDAY offers a suite of financial management applications and human capital management applications to the technology, financial services, healthcare and life sciences, and other industries, VEEV provides software, data, and analytics solutions, as well as data management applications to the life sciences industry.
A wave of hyper-digitization across industries has pushed enterprises to assess the needed changes to their business models and to prioritize increased spending on cloud-based platforms to facilitate more agility, resilience, and customer-focus. With the widespread and rising adoption of hybrid work structures, organizations and individuals are becoming more dependent on cloud collaboration platforms such as WDAY and VEEV to improve their flexibility. So, we think these companies are in a unique position to benefit and capitalize on a sizable market opportunity over the long run.
WDAY has gained 78.8% over the past year, while VEEV has returned 51.1% over the same period. In terms of their past three months’ performance, WDAY is the clear winner with 10% gains versus VEEV’s negative returns. But which of these stocks is a better pick now? Let’s find out.
This month, WDAY introduced new capabilities to Workday Extend to enable clients and partners to extend beyond core Workday applications to meet their business needs. The new facilities within Workday Extend should allow organizations to innovate faster and drive more value.
On March 9, WDAY completed its acquisition of Peakon ApS, an employee success platform that converts feedback into actionable insights. The acquisition should allow WDAY to offer businesses access to a continuous listening platform with real-time visibility into employee experiences, sentiment, and productivity to help drive engagement and improve performance.
Last week, VEEV unveiled Veeva Quality Content Reference to drive standardization in quality management and simplify stakeholder alignment. This should allow the company to better serve its customers in the life sciences industry.
Also this month, the company entered a strategic collaboration with Parexel, a U.S. provider of biopharmaceutical services, to advance clinical trials technology and process innovation. The partnership should drive customer success and speed innovations in clinical research.
Recent Financial Results
During its fiscal fourth quarter, ended January 31, 2021, WDAY’s total revenues increased 15.9% year-over-year to $1.13 billion. The company’s revenues from its subscription services segment increased 19.8% year-over-year to $1 billion. Its non-GAAP operating income increased nearly 81% year-over-year to $210.99 million, while its non-GAAP EPS was $0.73, representing a 46% increase year-over-year.
In the fourth quarter, ended January 31, 2021, VEEV’s total revenues increased 27% year-over-year to $396.8 million. The company’s operating expenses rose 17.4% from its year-ago value to $184.07 million. VEEV’s non-GAAP net income for the fourth quarter was $126.1 million, compared to $85.5 million for the same quarter of 2019.
Past and Expected Financial Performance
WDAY’s revenue has increased at a 26.3% CAGR over the past three years. In comparison, VEEV’s revenue grew at a 28.5% annualized rate over this period.
The Street expects WDAY’s revenue to rise 15.8% in the current quarter, ending April 30, 15.6% in the current year, and 18.2% next year. A consensus EPS estimate indicates a 65.9% increase in the current quarter and 23.5% in 2023. In comparison, analysts expect VEEV’s revenue to increase 28.2% in the current quarter, 20.4% in its fiscal year 2022 and 18.7% in 2023. Also, the company’s EPS is estimated to increase 18.2% in the current quarter and 17.6% next year.
WDAY’s trailing-12-month revenue is almost three times VEEV’s. WDAY is also more profitable, with a 72.7% gross profit margin versus VEEV’s 72.1%.
Also, , WDAY’s 31.8% levered free cash flow margin compares favorably with VEEV’s 28.9%.
In terms of forward non-GAAP PEG, VEEV is currently trading at 6.08x, 167.2% higher than WDAY, which is currently trading at 3.20x. Also, its 28.36x trailing-12-month EV/Sales is 102% higher than WDAY’s 14.04x.
VEEV is also more expensive both in terms of trailing-12-month Price/Sales (29.16x versus 13.99x) and trailing-12-month Price/Cash flow (78.29x versus 48.81x).
So, WDAY is cheaper than VEEV.
WDAY has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, VEEV has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Growth Grade, WDAY has an A, which is consistent with its earnings and revenue growth. In contrast, VEEV has a Growth Grade of C.
Both VEEV and WDAY have B grades for Sentiment, in sync with analysts’ expectations that their revenue and EPS will increase.
Beyond what we’ve highlighted, our POWR Ratings system has also rated both WDAY and VEEV for Momentum, Quality, Stability, and Value. Get all WDAY ratings here. Also, click here to see the additional POWR Ratings for VEEV.
Since most industries are now rapidly adopting cloud-based systems in response to an evolving world, WDAY and VEEV can be considered good long-term investments given their market dominance in the cloud space. However, WDAY has an advantage here given its accelerated new bookings growth and significant pipeline improvement. In fact, we think its lower valuation coupled with its high earnings estimates makes it a much more lucrative investment than VEEV.
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 learn about the top-rated stocks in the Software – Application industry. And click here to see the top-rated stocks in the Medical – Services industry.
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WDAY shares were trading at $260.43 per share on Wednesday morning, down $0.90 (-0.34%). Year-to-date, WDAY has gained 8.69%, versus a 12.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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