Veeva Systems: SaaS's Biggest Bubble And Tech's Best Short

November 2013

Veeva Systems Inc: SaaS' Biggest Bubble and Tech's Best Short

"Have Things on Wall Street Really Gotten This Bad Again?"

Price Target: $8.00 / share

Ticker: VEEV

Contents:

-Introduction

-Background

-Total Addressable Market

-Market Penetration

-Comparables & Valuation

-Could we be wrong?

-How to play this?

-References

-Disclaimer

"It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts." - Sherlock Holmes

In keeping with the recent trend of picking on good businesses with very ugly valuations, today we would like to focus on what we consider to be the biggest bubble in the entire Software as a Service ((SaaS))/Cloud space. For those wondering, we define biggest bubble by the degree of certainty with which a company will lose over 50% of its current market value in fewer than 12 months. In this case, we see a less than 5% chance of that not happening. That makes this a more appealing short than many broken business models and the traditionally overvalued companies (the list is endless). Like many companies we have looked at as of late, it is a recent IPO. That means that while many people may think they understand the business and the stock; they actually do not. Instead, they tend to toss around buzz-words, and focus on headlines that reaffirm what appears to be the popular view of the name. This lazy man's approach to analysis is typical of what happens when a bubble starts to form in a space. As you will see in this report, the people that are supposed to be providing the objective analysis are in fact back to their old bubblicious ways of making stuff up to justify the unjustifiable. Of course with the amount of IPO's these days this is no surprise. The net result of this approach is an environment where investors simply can't keep up and are in fact being fed blatantly inaccurate information. This is naturally where we have been finding opportunity.

To provide you with some context for this piece, we will begin by looking at a recent Forbes article on Veeva (VEEV) Systems. The article is quite short, but at the same time quite illustrative of just exactly what is going on in markets and specifically in this space recently. (As far as we're concerned is an ideal way to set the tone for the entire investment thesis detailed below)

The article opens with this:

"Veeva Systems is 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 today's trading, the shares are up a sizzling 80%."

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'.

The article continues with this:

"Yet Veeva has done something else that is remarkable: the company is not only growing quickly but is also profitable. In fact, the company has generated more operating cash flows - in the past year - then it has raised in overall funding. But to pull this off, Veeva had to take a unique approach; that is, the company pioneered something it calls the "industry cloud." It essentially means having a laser-focus on a massive industry vertical."

Now pay very close attention to this paragraph, because it is basically what drew us to this stock. In a nutshell, fast growing successful SaaS companies tend to run significant operating losses. The initial infrastructure investment, which is the crux of the value proposition behind moving away from on-premise solutions; combined with the front-loaded acquisition costs (sales commissions and marketing spend), needed to acquire and grow a subscription customer base guarantee that a new SaaS entrant should be losing money in its early high-growth years. Veeva is unique in the space because it is a profitable SaaS company, but instead of delving into why or how they were able to achieve this; the takeaway from the article is that Veeva is an even better buy and deserves a premium to everyone else. (This SA article also reaches the same conclusion.) The other interesting point to pay attention to here is the creation of a new buzz-phrase that Veeva supposedly pioneered. We can assure you that Veeva, which was founded in 2007, did not pioneer being a laser-focused SaaS provider to an industry vertical. (Blackboard (BBBB) in Education and Dealertrack (TRAK) in Automotive are two that come to mind as well as Medidata (MDSO) in the life sciences vertical.) They are however the first to stick the phrase in an S-1 which seems to go a long way these days.

Anyway, let's move on to another very telling paragraph.

"The CRM offering was a big hit. But for Peter, it was just the start. "We looked at where we could replace client-server systems and where there was lots of customer dissatisfaction," he said. "I always like to say: 'Customer dissatisfaction is my opportunity.'"

And Peter found the opportunity in content management. Let's face it, the life sciences industry involves dealing with huge amounts of documents. There are also mind-numbing regulations. In other words, it was an ideal target for the cloud.

But of course, Peter did not stop here either. He then went on to create Veeva Network, which creates a rich master record of customers."

Ahh, this is an innovative and very diversified product offering company. The interesting thing here is that CRM is presently 95% of Veeva's subscriber revenues. More on that later, but for now you should get where we are going with this.

Veeva has done very well for itself over the past five years, but for the most part this author and most investors in the stock don't realize what they are dealing with. This is a vertically focused CRM provider that has been basically incubated by Salesforce.com. It is for all intents and purposes a white-labeled CRM SaaS provider. This is how the company has grown so quickly and with such capital efficiency. It skipped the investment cycle and outsourced to Salesforce.com in exchange for 20% of its subscription revenue, and at IPO it has already achieved a very high penetration in its addressable market. Common sense would dictate that such a model would trade at a steep discount to a horizontal proprietary SaaS platform, and not at the significant premium this stock commands. Moving forward there are obviously a lot of question marks regarding how their relationship with Salesforce.com will evolve (if you were CRM and had incubated Veeva what % of sub revenues would you demand when it has achieved a commanding market share?), and what additional product offerings can generate meaningful revenue growth beyond CRM.

Background

Veeva is a cloud-based CRM provider for the life sciences industry. This means their software utilizes multi-tenant architecture that allows them to provide upgrades to all customers simultaneously. The main competitors in the space are Oracle-Siebel and a French company called Cegedim (GM:CGMJF). Veeva was founded in 2007 by ex-Salesforce.com early-stage employee Peter Gassner, and ex-Siebel life sciences employee Matt Wallach. (The firm was largely funded by $3 million in angel money and a $4 million investment from VC Emergence Capital.) The company was quick to embrace the iPad as a pharma Salesforce tool, and its flagship product Veeva "Irep" provides multiple channels. These include both industry closed looped marketing capabilities as well as traditional CRM functionality through a cloud-based platform. It also has a Veeva "Vault" offering for enterprise document management, and recently launched a master data management of customer data solution called "Veeva Network".

Now, before we get into our bear case against the stock, let's just reiterate that what these guys have accomplished is pure genius. They spotted a gap in the market and found the fastest, most capital-efficient way to fill that gap. Rest assured there are a lot of people in the CRM Life Sciences space who are probably kicking themselves for not trying the same thing, and plenty of VCs wondering how they missed out on 300x+ return over 5 years (Interesting side note, the original name on the certificate of incorporation for Veeva in 2007 was Rags2Riches Inc… so mission accomplished and then some). Honestly, how many people on planet earth will ever turn $7 million into $1.2 billion we think Veeva is worth? We point this out because there are going to be some people who view this robust short-thesis as an attack on the company when in reality it is nothing more than a very systematically driven critique of the wildly mispriced stock of a well-run business. The recent flood of IPOs, cheap money, irresponsible analysis, press, and buzz-word chasing investors are where you should be placing the blame for conditions which have allowed such an investment thesis to exist.

Veeva's relationship with Salesforce.com comes with inherent growth limitations that are not even being considered let alone discounted by the current stock price.

The strategic move to build their Veeva CRM on top of the Salesforce.com platform combined with a highly specialized industry focus is what has allowed Veeva to grow as quickly and profitably as it has. They managed to sidestep the significant capital requirements and huge sales/marketing investments (by focusing vertically you can significantly drive down customer acquisition costs) that are typical of a SaaS startup. That's the good news, which has been covered extensively by the main-stream financial media. Now for the bad news; this business model approach does not lend itself to an ultra-high multiple company valuation. Veeva is currently paying Salesforce.com what we have worked out to be roughly 20% of their subscription revenue. This is a pretty generous split considering what Salesforce.com has brought to the table in terms of infrastructure, resources and instant CRM credibility. Yet we're confident Salesforce.com had no problem with this as they would be driven to acquire as much market share as possible. However now that Veeva is the market leader in the US CRM life science space, we fully expect that Salesforce.com will be looking for a more favorable split.

To better comprehend these inherent limitations below is an excerpt from Veeva's S-1:

"Our agreement allows us to provide our customers with rights to the Salesforce Platform Unlimited Edition for use as combined with the proprietary aspects of our Veeva CRM solution. Under our agreement, salesforce.com provides the hosting infrastructure and data center for portions of the Veeva CRM solution, as well as the system administration, configuration, reporting and other platform level functionality. In exchange, we pay salesforce.com a fee. Our current agreement with salesforce.com expires in September 2015 and is renewable for five-year periods upon mutual agreement. If either party elects not to renew, the agreement provides for a five-year wind-down period in which we would be able to continue providing the Salesforce Platform as combined with the proprietary aspects of our Veeva CRM solution to our existing customers but would be limited with respect to the number of additional subscriptions we could sell to our existing customers. We believe that we have a mutually beneficial strategic relationship with salesforce.com."

And a little more from the S-1 Risk Factors:

"Our agreement with salesforce.com also provides that we can use the Salesforce Platform as combined with our proprietary technology to sell sales automation solutions only to drug makers in the pharmaceutical and biotechnology industries, which does not include the medical devices industry or products for non-drug departments of pharmaceutical and biotechnology companies. Use of the Salesforce Platform to sell to additional industries would require the consent of salesforce.com . While our agreement with salesforce.com provides that salesforce.com will not position, develop, promote, invest in or acquire applications directly competitive to the Veeva CRM solution for sales automation that directly target drug makers in the pharmaceutical and biotechnology markets, our remedy for a breach of this commitment by salesforce.com would be to terminate the agreement, or continue the agreement but be released from certain minimum payment commitments to salesforce.com . Our agreement with salesforce.com also does not restrict a salesforce.com customer's ability (or the ability of salesforce.com on behalf of a specific salesforce.com customer) to customize or configure the Salesforce Platform in any way. Our inability to freely sell our Veeva CRM solution for sales automation outside of drug makers in the pharmaceutical and biotechnology industries may adversely impact our growth."

Veeva is limited by contract to offering sales automation solutions in the big pharmaceutical and biotechnology space. That is the price you pay when you bypass building your own CRM SaaS infrastructure by partnering with the Cloud CRM leader. The implications of this for any long-term investor and company are significant. For example, if the lunar orbit valuation was not such a glaring issue, a potential strategic acquirer would need to overcome the Salesforce.com hurdle in any transaction. This leaves Salesforce.com as the most likely natural future acquirer of this business. Then you have to ask yourself what is the 60-70% of subscription revenue that they can't collect as a fee worth to them knowing Veeva's dependence on their platform? It is nowhere near what the bulls in this stock will be thinking when they get around to making this argument (after the first major drop in the share price of course). See, the problem here is that if anyone else gets strategically interested in this business, Salesforce.com becomes an instant competitor. They have the scale and infrastructure to make your life hell if you are a niche focused CRM provider. So, as far as we're concerned Veeva will be sticking to Salesforce.com, and gradually conditioning the market to expect its down the road growth prospects to come from outside of the core Sales Force Automation (SFA) CRM space. No big deal, until you factor in where the stock is presently trading.

We'd also point out that we found the 'coverage' of its model to be misleading as far as it paying Salesforce for 'infrastructure costs'. This would imply something more along the lines of an outsourced infrastructure relationship when in fact what we have here is basically a white-labeled offering. This is why it pays Salesforce a direct percentage of subscription revenue, and why it is likely going to have no problem paying an even higher split in 20 months.

Also, if you were wondering how Salesforce views this relationship, just take a look at this exchange.

"Brandon Barnacle - Pacific Crest Securities - Analyst

Following on that on the Veeva side, if Veeva or somebody like them to decide they were going to go off the platform, and go onto AWS or something else. How difficult is that transition?

Parker Harris - Salesforce.com - Co-Founder, EVP

Well for Veeva, it would be very hard. They've deeply embedded in us, and they use a lot of our core functionality. So it's not like they're using us for an app server and a language, and structure service kind of layer. They're using us for our cores here and capabilities, our analytical capabilities, our APIs, all of that tied together you'd have to replace in another environment. So if you went to AWS, you could rebuild all that, but it would take you -- you would have to take all the IP that we've been building for 14 years, and rebuild, not all of it, obviously, but pieces of it to complete the Veeva offering."

Total Addressable Market

Veeva's current market capitalization already dwarfs its total addressable market opportunity reported in the S-1. And this Total Addressable Market (TAM) is flat out massively overstated and we can prove it beyond a shadow of a doubt.

Veeva Share Capital	Shares Millions
Shares Outstanding post IPO	124
2012 Plan Options avg strike $3.98	16.5
2007 Plan Options avg strike $.58	8.9
2012 Plan Options avg strike $12.58	0.9
Fully Diluted Share Count	150.3

Using this table you can quickly calculate that Veeva's fully diluted market capitalization is $6.1 billion (closing price of $40.54). That puts it at almost 1/5th of Salesforce.com, but more on that later. For now, we want to go back to the S-1 and call your attention to Veeva's comments regarding their TAM.

From the S-1:

"For the market segments within the life sciences industry that we believe are relevant to our solutions, based on our internal analysis and industry experience, we estimate the total addressable market, including the market segments for sales and marketing automation and related solutions for life sciences sales representatives, regulated content management solutions for life sciences companies, customer master solutions for life sciences companies, and healthcare professional, organization, affiliation and reference data, to be at least $5 billion."

At least $5 billion for a $6.1 billion market value company? Remember this includes what they hope to penetrate with 'Veeva Vault' in regulated content management, and 'Veeva Network' in Master Data Management. This type of disclosure is always a red flag for us when we are looking at a hot new IPO. Now, to be clear this $5 billion number is VERY misleading (that's us being polite) for current investors, because with respect to the life sciences Salesforce automation software that Veeva presently derives 95% of its subscription revenue from the actual total revenue opportunity is much smaller. Based on public disclosures from Cegedim and Veeva, IDC and Gartner data, conversations with ex- life sciences CRM employees as well as life sciences SFA consultants, and general market research; we would estimate the total current life sciences SFA annual revenue pie at somewhere between $500-$1,000 million. So, either the rest of the revenue opportunity is $4.0-$4.5 billion, or there has to be some inherent massive expansion of the pie assumption embedded in this $5 billion number. Well, we didn't have to investigate too long to understand this gap.

The $5 billion TAM breakdown is provided in detail within the launch report of co-lead underwriter #1 of the Veeva IPO (We are going to reference this report a few times, but just to be tactful we will not point out the firm's name here). The number is...

$2 billion CRM +

$2 billion Enterprise Content Management (ECM) +

$1 billion Master Data Management (MDM) Customer Data= $5 billion

So, its core SFA business is a $2 billion TAM. That's 2-4x what the actual total revenue opportunity our own research indicated currently exists in this space. So this begs the question of how did it come up with this $2 billion number? On page four of co-lead underwriter #1's initiation report, there is a nice little table that shows you the CRM TAM assumptions. They are based on a global pharmaceutical sales rep head count of 450,000 and annual dollar per seat count of $4,500. Multiply those two numbers together and you get $2 billion. (To be clear, we found this to be quite amusing because we spent a whole hell of a lot of time trying to get that $500-$1,000 million number).

So, who is right?

Well, you can decide for yourself.

The current market share leader in the life sciences SFA space does an annual audit of the global pharma sales rep count number. At the end of 2011 that audit had the global pharma rep count at 413,565 (-1.8% over 2010). That count declined by 2.5% in 2012 to 403,225 reps. (Cegedim 2012 Annual Report pg. 9) To be clear the rep market continues to shrink globally. This makes us wonder how responsible using 450k as the number in your calculation is when inside the same report you state that the global rep market is between 400-450k (some state over 450k without citing to anything). Anyway, no big deal, we just wanted to show that the audited numbers are readily available and accessible, yet surprisingly nowhere to be found in 30+ page launch reports on Veeva. Furthermore, Cegedim tends to break out their CRM market share data in their public filing.

Here is what the breakdown looked like at the end of 2011:

You don't need to be Sherlock Holmes to figure out who number two and three are. Now, in their most recent quarterly disclosure, Cegedim reports its share at 36%. Based on these disclosures, you can conclude that Cegedim's CRM user count has gone from slightly over 150k to slightly above 140k today. Now factoring in Veeva's quarterly subscription revenue numbers we were able to estimate a user count for the quarter ending April 2013 of 98k. We can confirm through our own due diligence that Veeva's CEO put this number at 100k in his address at their user summit on May 7th of this year. (This Philly Tech News article covering the Summit is a nice secondary source that also supports our finding.) Thus, you can estimate that Veeva's Q2 exit CRM user count was somewhere between 115-120k users. That would put their global life sciences CRM market share at the end of Q2 at 30%. So basically Cegedim+Veeva have just below 70% of the market share in this space.

Here is what the life sciences CRM market share breakdown looks like based on our extensive research:

Here are our estimates of Veeva's CRM user count:

Now onto the BIG DEAL... (Yes, there is more!)

While we can overcome a 12.5% overstatement of the secularly declining global pharma rep count, we can't overlook a 300% overstatement of the current revenue per seat number. Yes, the TAM is calculated using $4,500/seat annual revenue number. This is remarkable considering the fact that the current CRM subscription cost being charged per rep works out to $99 a month or roughly $1,188 a year based on our estimated Veeva user count. As IDC's latest vendor assessment report had Veeva at "more than 115k users live" (and our math from earlier is within a hair of that), our subscription dollar per seat estimate is in the right neighborhood. This basically means that the TAM being used is 4x the actual current annual subscription revenue run rate opportunity of $475 million that their 'low entry point' pricing strategy implies.

Now, this is right about the point where you get very irritated with the analysis being put out by the co-lead underwriter, and start to wonder whether the $5bln TAM was actually their idea. (Note, the original S-1 filed on June 26 does not include this number and instead simply references broader life sciences IT spend and Cloud Software data. It was not until a July 23rd SEC letter request raised the matter that a specific TAM was provided. Thus, this math analysis/math for their TAM was likely done well into the IPO process.) This view was reinforced for us when we read how the other co-lead underwriter sized Veeva's market.

From co-lead underwriter #2's report (pg 21):

"Veeva targets the Life Sciences vertical with its products catering to Life Sciences-specific CRM, content management and master data solution. Life Sciences software spend is ~8.8% of total software spend. We believe Life Sciences CRM, content management and MDM spend will have similar shares out of the total spend on CRM, MDM or content management. We estimate Veeva's TAM to reach $ 8.6 billion by 2020 from ~$5 billion in 2013, an 8% CAGR. We expect the company to have a 10% penetration in the Life sciences CRM market, 4% penetration in the life sciences content management market and 12% penetration in the life sciences MDM market on account of Veeva's leadership position in this vertical. On account of growing TAM size and increasing penetration, we believe VEEV will achieve revenue of ~$620 million by 2020, an 18% CAGR. We believe these estimates are quite conservative."

To be honest we skipped over this the first time, and went straight to their approximate numbers for CRM life sciences spend.

We spent a good deal of time staring at these numbers because we did not understand how they were growing at 7.7% a year for the past few years. If global reps are shrinking and the high-priced legacy CRM providers are being displaced by a low-price Veeva offering, how can the aggregate life sciences CRM spend dollar value be going up? Veeva taking market share is a given, but to see the CRM life sciences total spend number rising steadily over the past several years defied all human logic. We know for a fact that Oracle's Siebel revenues here have steeply declined, we know for a fact that Cegedim's have come under a little pressure, and we know what Veeva has been generating. Put these three players' revenue numbers together and you have almost the whole CRM life sciences market. (It is not rocket science.) Yet, the co-lead underwriters decide to slap an 8.8% number across each horizontal market to get their TAM for each space? This TAM analysis honestly couldn't have taken more than five minutes and some excel 'drag down and to the right' skills. We say this with conviction as their 2017 total CRM market size number of $36.5 billion is based on 39% increase over 2016's $26.3 billion. How does that happen and do you now understand why we spent so much time staring at these numbers? Well, in Q2 Gartner revised their CRM 2012-2017 CAGR from 10% to 15%. The model was adjusted for 2017's approximate $36.5 billion Gartner estimate, but as you can see the CAGR maintained at 10%. Thus, whoever put this model together was simply too lazy to go back and make all the requisite revisions to the 2013-2016 numbers. (For what it's worth we'd also like to point out that this whole Gartner CRM market share/size report has stirred a good deal of controversy on the web.)

This is a simply priceless quote:

"We believe life sciences CRM, content management and MDM spend will have similar shares out of the total spend on CRM, content management or MDM."

Why are 'We' resorting to 'believing' when the actual numbers are out there? We are going to go off track here a bit to show just why this irritated us so much. When you top-down size a market for a financial model, the first thing you do is work to proof that number with a bottom-up sizing. You do this because being slightly off on a small slice of HUGE number can lead to being WILDLY wrong about the size of a niche vertical. Of course the problem with bottom-up proofing is that getting the necessary data on so many players can take a lot of time or in some cases be next to impossible due to lack of access. Thus, more often than not you just double check against the market share leaders (usually they are public) to make sure the top-down number is in the ballpark. As we know in life sciences CRM, 60%+ of the active users belong to two public companies that are largely life science vertically focused. (Cegedim CRM/Sales & Distribution (SD) division is roughly 50% of total Cegedim group revenue with CRM making up 40% of that division's slice.) A little due diligence and you have something close to an actual size of the market based on real values. There is no 'believing' required. We would also add that if you take their $1.776 billion 2012 actual size of the life sciences CRM market, and check it against Cegedim's disclosed CRM/SD total revenue and reported market share you get an approximate match. Meaning they divided EUR 488 million by 37% to get that number! Had they taken the correct 40% CRM share of the CRM/SD division number they'd have ended up with a life sciences CRM TAM of $700 million in 2012. That works out to a 65% overstatement of the annual revenue opportunity in the market from which Veeva presently derives greater than 95% of their revenue. We'd also like to point out that if you take the Gartner $396 billion total software spend number and the $28 billion IDC Life Sciences software spend number cited in the S-1 that you get a 7% LS total software market share. Now normally a 1.8% difference is no big deal, especially when you are approximating, but in this particular case that equates to $7.1 billion or 142% of their disclosed TAM. In fact, the only way you get to an 8.8% share is if you work back off of Cegedim's CRM/SD total revenue number and apply it to the Gartner total CRM market estimate. Based on all of this, we can reasonably infer that the incorrect Cegedim CRM revenue was the MAIN DRIVER behind the entire TAM analysis. (We can only imagine the potential legal headaches this one little mistake is going to produce when someone finally loses a lot of money on the stock.)

And to be clear co-lead underwriter #1's report is just as irritating.

From the launch report page 1:

"Veeva's growth to date has largely come from displacement of Siebel and Cegedim CRM for biotech and pharma sales reps, but we believe Veeva's penetration of this $2b rev oppy remains single-digits, with room for growth via both seat adds and add on modules."

Now turn over to page 2:

"Investment thesis: Veeva provides SaaS solutions for the life sciences industry targeting $5 billion in spend today."

Well, which is it? spend today or a future opportunity?

If it is 'spend today' we know Veeva's penetration as of Q2 financials was at 30%+ in CRM/SFA; that is clearly verifiable. However, by page 8 of this report this conundrum is clearly resolved as they use the $5 billion for their 2013 year-end market assumption. (IDC and Gartner should not be too happy about being lumped in as a source here even if they only used them to pull the aggregate IT spend number.) Their bull case is based on doubling this market size by 2028 amongst other things. We'd also like to point out that, based on one 3rd party consultant we spoke with, when Veeva's current implementations are completed they could have 35% of all global reps using their SFA product already. Single digits huh? This is just careless work, and goes to show just how loose things have become in the IPO underwriting environment. For the record, we don't doubt this number could increase over time and possibly approach about $2,000 per seat a year (implying a $800 million TAM size for life sciences SFA today). However, we will point out that such an assumption doesn't jive with what has worked for Veeva so far.

The bulk of Veeva's success thus far has come from displacing the Siebel Life Sciences CRM product (this can be reasonably inferred from Cegedim's stable user count disclosures and North American market revenue disclosures combined with Veeva's S-1 disclosures) that was extremely overpriced and simply technologically outdated. They have killed it with pharma companies who want a very cheap on-demand CRM product (when your rep count is shrinking the way it has in this industry, clearly on-demand is critical for CRM ROI). These guys would have been switching to Salesforce.com or another horizontal player at the custom enterprise SFA price of $125 per seat per month. If that was not the case, Cegedim's rep market share would have collapsed by now. Thus, assuming that these customers are going to allow their costs to double or quadruple is illogical. The Salesforce.comPro and Microsoft Dynamics offerings are now at $65. There are life sciences industry cloud startups out there like German based Ysura that are offering a fully transparent $75 a month. Then there are the ultra cheap CRM companies like Zoho which are growing like a weed amongst small to medium sized businesses on the back of commodity CRM pricing (free for first 3 users... $12 for standard... and a whopping $35 for their enterprise edition.) The trend in pricing here is clear, and the irony of all of this is that Veeva's 'disruption' is a part of this.

Just look at its white paper financial model from two years ago on why an on-premise life sciences customer should switch to a SaaS CRM. (click to enlarge)

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 year end 2012 global rep count of 403k and you get $700 million TAM. Now take Veeva's Q2 revenue and annualize that number and then divide by 115,000 users. What you get is a spot on match as far as total revenue per seat. The only difference here is that the subscriber break-out is 20% lower which would match with the high volume discount under $100 subscription seat pricing strategy they have used to land the big-pharma top 20.

If Veeva does everything right on its offering by providing ultra-premium options maybe it can get to an average blend in the $150-$175 a month revenue per seat range, but that has not been its typical customer. If you take Cegedim's 140,000 CRM users and divide that into TTM CRM revenue of $240-250 million (40% of CRM/SD division TTM revenue) you get $150 per CRM user in total revenue a month.

Understanding what is implied here is very important for anyone looking at this stock. Veeva's on-premise CRM displacement has been driven by annual savings of 40%+ early on. As competitors have reacted and shifted towards on-demand, the entire average selling price per seat has been driven down. This means the co-lead underwriters TAM dollar target of $4,500 would work out to a 60% increase over the legacy on-premise CRM solution average annual price of $2,840 that they have 'displaced'. Interestingly enough if you work back from this number you have a life sciences SFA TAM of $1.1 billion or 45% below what is being suggested.

Does this make sense to anyone?

Did the top 20 pharma companies in the world switch to on-demand so that "add-ons" would take them 60% above what they were paying before for on-premise? We don't think so!

As we have already pointed out, what we think happened here is that the top down "8.8%" share of all CRM spend 'believe' number for the CRM life sciences market poisoned every model. Despite all evidence to the contrary regarding industry dynamics, nobody proofed this number. Consequently, all the analysis being done by research analysts is in fact an attempt to validate one unbelievably wrong assumption. (Not that any of this matters because at $400 a seat you still 50%+ downside in the stock with even generous margin assumptions and further market share gains in CRM.)

Would it surprise you to hear that when we walked one industry expert through this math that they replied, "You gotta be s**ting me."

When we asked a CRM life sciences consultant about the possibility of reaching $4,500 a seat they answered, "That's impossible. And even if it was remotely possible, it would be impossible because the horizontals would then immediately target the entire the market."

See that's the thing about focusing on a niche, it's a niche because it doesn't move the needle for the horizontals. If it did, they would want to come after the whole pie.

Now on to the rest of the TAM.....

We could have, based on our CRM findings, simply assumed this type of 'flawed analysis' is being employed to get the addressable market sizes for enterprise content management and MDM customer data. (Just to be thorough we actually checked this data as well.)

Total revenue for the entire ECM market across all verticals in 2012 was $4.7 billion (pg. 27). We spoke to several ECM experts and they pegged the life sciences vertical at 15-20% of that in this category. That means the whole market is worth between $700 million-$1 billion annually. Isn't this better than taking 8.8% of $30 billion plus in global content management spend? You mean to tell us that nobody had the time to call two or three ECM executives in life sciences to make sure this ball-parked out?

Veeva Network is forecast to account for $1 billion of the $5 billion TAM pie. The product targets the MDM of customer data market. This market generated $527 million in software license revenue for all existing vendors across all verticals in 2012. Informatica, the life sciences leader by market share, did a total $70 million in license revenue across all verticals in this space. Using the same 15-20% vertical share, (it was pegged lower here, but since standardization is en vogue we'll use the higher number) you get what looks like $75-$100 million annual license revenue opportunity in life sciences. To be generous let's call it $350 million across the board today since MDM license revenue is pegged at 35% of total MDM spend. We can also work bottom-up here and take Cegedim's Onekey database revenue, which we'd consider a better comparable versus a MDM offering from Informatica at this juncture, of $120 million (20% of CRM/SD division revenue) and their reported market share of 44% (the company claims to have never lost a OneKey client so you can infer what peak asp's look like here) to get a $272 million market size to proof this out.

Add all these numbers up and you will see that the total addressable market for all three Veeva products is currently somewhere between $1 billion and $2 billion. The market cap of Veeva is now 3x-6x the entire annual revenue opportunity of its industry! That means at 50% market share annual revenue would be $500-$1,000 million. That would imply the stock is trading at 6x-12x peak sales of the current pie. (Needless to say that is plain ridiculous.)

To top this all off we give you this from page 1 of underwriter #1's launch report:

"Our $36 base case assumes that Veeva can grow revenue at 25% CAGR through FY2028 and capture 4% of all life sciences IT spend."

Now, we will simply say no comment here on using 15 years of 25% CAGR as our 'base case' for a vertical solution provider relying on the horizontal leader's entire platform infrastructure. That is not what we want to focus on. The 4% number assumes the life sciences IT market will grow from $44 billion today to $65 billion by 2028. This caught our eye because it shows that even the analysts covering this stuff in detail don't understand the very basic nature of what is going on here as far as displacement and substitution. The vast majority of that $44 billion number is replaceable hardware and infrastructure that the SaaS model is completely displacing. Basically, this pie should start to shrink drastically in dollar value but also improve in margin profile as SaaS continues to grow. Common sense really, but we would guess that when you are engaged in financial alchemy those senses are numbed.

If you don't believe us just look at the data on total life sciences software license revenue in 2012. Total license revenue was $3.2 billion. That's ERP, CRM, Human Resource Management System (HRMS), and everything else you can think of. That means if you assume a 40/60 split between license and services you are looking at a total market for software and services in life sciences that is 'at least' $8 billion. If the market is that size, even if it's double that, the aggregate IT spend number should start to really come down as the hardware equipment spend is displaced by more cloud hosted services. In a nut shell, the dollar spend on hardware infrastructure is moving to the datacenter and platform providers, and at the same time substitution is eliminating another portion of the pie. Isn't this better than going nuts on an unreasonable top-down if you are targeting a vertical? Wouldn't you at least agree that proofing here would have at the minimum 'helped'?

In this case even the top-down numbers used to get at this TAM don't require anything more than a glance to force you to check your own numbers. Gartner's April report for CRM Software sized the market at $18 billion; $2 billion is 11% of that. If the market is that big and VEEV/Cegedim are 60-75% of global life sciences CRM users, they should crack the top ten here. They don't.

(click to enlarge)

If you go to same report from the previous year, you can see Gartner has Cegedim in at number nine with CRM revenues that comps to a 30-40% share of the disclosed CRM/SD division number (which we took the time to verify).

(click to enlarge)

What is happening here is low price CRM for call centers and other parts of the less penetrated CRM market are growing very fast. (We're talking the $20/month solutions.) So, the 'analysts' get this pie that they keep growing and then go back to the 8.8% life sciences total software share and apply that on this enlarged pie. It simply doesn't add up because life sciences CRM is a mature sector with already complete CRM SFA penetration that is also dealing with very challenging industry dynamics. The global pharma sales force has been shrinking and thus there are fewer seats to sell into, and the move to on-demand has pressured overall ASP's. The vertical is without a doubt a major exception to the rest of the CRM market, and despite ample evidence to warrant closer investigation; nobody has bothered to take a look.

Anyway, we would like to emphasize that the CRM TAM number is the one you should focus on here because it is clearly wrong, and also provides ample evidence of faulty logic regardless of the math involved. Declining global reps combined with a shift to the cloud CANNOT result in rising SFA life sciences industry revenue. That is impossible regardless of the 'add on' possibilities you throw out there, and should speak volumes to the relative level of work done here. The other two Veeva offerings TAM sizes are also likely overstated, but we will concede that they are at least open to some further degree of debate. (But at less than $5 million in revenue in 3 years that shouldn't matter much to anyone valuing the stock today.)

Now that that's behind us. We provide the following exchange between the SEC and Veeva with respect to TAM and Industry Data.

SEC Letter to Veeva July 24, 2013:

Comment 3. We note the disclosures here and on page 4 regarding the overall size of the life sciences industry and the amount that the industry spent on technology in 2012. Please clarify in these sections the size of the market for your software products.

Comment 13.We note the statements in this section that "[i]ndustry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information" and that while you believe such studies and publications to be reliable you "have not independently verified market and industry data from third-party sources." We also note your statement that "[w]hile we believe our internal company research is reliable and the definitions of our market and industry are appropriate, neither such research nor these definitions have been verified by any independent source." Please delete this language to avoid the implication that you are not responsible for the accuracy of the information you elect to include in the prospectus.

Veeva Response August 2, 2013:

Comment 3.

Please provide us with the relevant portions of the industry research reports you cite in the prospectus. To expedite our review, please clearly mark each source to highlight the applicable portion or section containing the statistic, and cross-reference it to the appropriate location in your prospectus. Also, please tell us whether any of the reports were prepared for you.

In response to the Staff's request, the Company has supplementally provided, under separate cover, the applicable pages of all industry research reports cited in the prospectus. To expedite the Staff's review, we have marked the relevant portion or section containing the information in each industry research report and have included a cross reference to the page in Draft Registration Statement No. 3. We advise the Staff that none of the industry research reports were prepared for the Company for use in the prospectus or otherwise.

Comment 9.

We note the disclosures here and on page 4 regarding the overall size of the life sciences industry and the amount that the industry spent on technology in 2012. Please clarify in these sections the size of the market for your software products.

In response to the Staff's comment, the Company has revised its disclosure in Draft Registration Statement No. 3 on pages 4, 75, and 76.

Comment 13.

We note the statements in this section that "[i]ndustry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information" and that while you believe such studies and publications to be reliable you "have not independently verified market and industry data from third-party sources." We also note your statement that "[w]hile we believe our internal company research is reliable and the definitions of our market and industry are appropriate, neither such research nor these definitions have been verified by any independent source." Please delete this language to avoid the implication that you are not responsible for the accuracy of the information you elect to include in the prospectus.

In response to the Staff's comment, the Company has revised its disclosure on page 37 of Draft Registration Statement No. 3 to remove this language.

SEC Letter to Veeva August 16, 2013:

Industry and Market Data, page 37

1. We note your response to prior comment 13, and your corresponding revised disclosure where you state that you believe that the information provided is "generally reliable." This statement appears to imply that certain of the information may not be reliable. Please tell us why information is being included in the registration statement if it is not reliable, or remove this portion of the disclaimer.

Veeva Response August 26, 2013:

We note your response to prior comment 13, and your corresponding revised disclosure where you state that you believe that the information provided is "generally reliable." This statement appears to imply that certain of the information may not be reliable. Please tell us why information is being included in the registration statement if it is not reliable, or remove this portion of the disclaimer.

In response to the Staff's comment, the Company has revised its disclosure on page 37 of Draft Registration Statement No. 4 to remove the reference to "generally."

Does the fact that Veeva initially sought to use the best possible language to shield it from accountability regarding industry data it used related to sizing its own market jump out at you now? In fact, its first submission left that number out altogether. Something that struck us as odd for an 'industry focused' cloud software provider filing to go public.

Thus, to sum this CRM TAM argument up, by our math, 66% of the life sciences CRM user market is worth $440 million in revenue ($250 million Cegedim + Veeva's annualized Q2 CRM revenue which works out to $190 million). Do you 'believe' the remaining 34% is worth $1.56 billion?

We would argue that based on the questions raised here with respect to SFA life sciences and on the fact that Veeva's TAM was a material disclosure in their S-1 that ALL sell-side coverage of Veeva should be suspended immediately pending further review. Investors deserve a more thorough explanation of how these assumptions with respect to Veeva's core life sciences CRM market size/dollar penetration can be reconciled with their current business model and the present state of the entire life sciences CRM industry. If all we end up accomplishing through this report is forcing a more detailed analysis of the SFA life sciences market, we know we will have done our job well.

Market Penetration

Veeva's core target SFA market is dominated by large life sciences companies amongst which they have already achieved significant penetration. Basically, they have already managed to successfully grab all the low hanging fruit.

According to Veeva's public disclosures, as of August, the company had 170 life sciences customers, including 33 of the 50 largest global pharmaceutical companies. To put this in perspective, the top ten customers accounted for 54% of total revenues in 2012 with two large pharma players each accounting for at least 10% of total revenues. Now, we are not raising this issue from a customer concentration risk standpoint because frankly that is the nature of this industry. If you are doing a good job, you should be cleaning house at the big boys in the way that Veeva has over the past few years. On the contrary, we bring it up because an industry that is skewed to such large players can make for difficult organic growth if you have already achieved high penetration amongst them. The residual revenue opportunities at smaller life sciences companies simply become insufficient as they don't move the needle anywhere close to what they need to for the current valuation to make any sense. Furthermore, the competition over remaining large pharma accounts that Veeva has not acquired should become quite fierce as these revenue opportunities become increasingly critical to the survival of their competitors. Of course, Veeva is quite aware of all of this, and has disclosed this as a risk factor.

From the S-1:

"To date, we have derived more than 95% of our subscription services revenues from our Veeva CRM solution, and our Veeva CRM solution has achieved substantial penetration within the U.S.-based sales teams of pharmaceutical and biotechnology companies. If our efforts to further increase the use and adoption of our Veeva CRM solution do not succeed, the growth rate of our revenues may decline."

Now, this is where digging around a bit pays off. Two years ago, Oracle was the US leader in life sciences CRM, and the reported overall global leader in the space. Last year, Veeva passed them in the US. This year, based on a recent IDC report, they passed both Oracle and Cegedim worldwide. (The former is true, but we can't confirm the latter even though it would only bolster our thesis, as our research has Cegedim with a slight lead in rep seats and with a more sizeable lead in revenue per seat even though Veeva's priced to grab share approach seems to be the driver of that.)

Here is the market share IDC table from the most recent vendor assessment. (Bubble size indicates market share.)

(click to enlarge)

As you can see, Veeva has already achieved substantial penetration in its core market.

So, what exactly is substantial penetration?

Well, despite it being the most important metric to break out for a life sciences CRM company going public, Veeva does not disclose active user count. Open the S-1, click find 'active users', and you get nothing in the 131 page prospectus.

The SEC asked for more information regarding CRM customers, but Veeva did a good job of cleverly dodging this question.

Veeva SEC Correspondance Aug 26, 2013:

We reissue comment 15 insofar as you have not quantified the portion of your total revenues from Veeva CRM, nor have you provided the number of Veeva CRM customers. Please consider including this information, as well as the corresponding information for Veeva Vault.

"In response to the Staff's comment, the Company has revised its disclosure on page 6, 14, 45 and 48 of Draft Registration Statement No. 4 relating to the percentage of subscription services revenues that can be attributed to Veeva CRM. The Company respectfully submits that it believes that disclosing the number of Veeva CRM and Veeva Vault customers is not meaningful disclosure and may be misleading by drawing the attention of investors to a measure that management does not consider a reliable indicator of the strength of the Company's business. For example, new sales orders for the Company's subscription services very often are the result of the deployment of additional users of its solutions or the deployment of additional solutions by its existing customers and not necessarily the addition of a new customer. The Company's sales to its customers are almost always incremental in nature in that customers frequently purchase a limited number of users or only one of the Company's solutions and then place new orders for additional users or solutions in subsequent orders. The Company's revenues may therefore increase significantly without a corresponding increase in the number of customers."

Ahh, if only the SEC had worded their question a bit more clearly maybe would have gotten a decent disclosure on CRM users. After all you've read so far, don't you now think disclosing the active user count number before the IPO would have seriously helped every investor better evaluate this company's value? Are you now irritated that it was publicly disclosed by the CEO one month before they filed their registration statement and that anyone with Google Search can confirm this on the internet? Should the SEC feel embarrassed here? Also, the case for keeping such a number private for 'competitive purposes' kind of falls apart in such a concentrated market share situation. (Clearly the three main players all know who has the other users...) Anyway, no big deal because as we have shown there is plenty of data out there that allows us to get at this number.

These are the pharma sales rep counts in the US and top five European countries at the end of 2012. These numbers speak for themselves. Over the last six years, the rep count in the US is down 37%. As an investor in Veeva shares, this data should seriously concern you.

From the S-1:

"Subscription services revenues from North America, as measured by the location of the end users, made up 63% of subscription services revenues in the six months ended July 31, 2013, as compared to 77% in the prior year period."

If 63% of sub revenue is coming from reps located in North America, then our estimated H1 2013 average rep count of 101k will allow us to calculate penetration. This works out to 63k users in North America. However, let's assume (note this is all we can do because this critical metric is not disclosed) that this user is probably generating 10% more revenue per seat than the implied blended global average. Doing that gets you to 57k+ live CRM users in North America. That would work out to 85%. This is not 'substantial' penetration. It is outright saturation.

We also think the slowing rate of professional services revenue growth supports the IDC survey data. As large implementation opportunities dwindle and the partner network ramps, professional services revenue growth rates should markedly drop. (Note this is a place where we agree with the street as every model has 2013 professional services revenue basically flat yr/yr.) At the same time, the overall revenue growth rate in the US vs. the rest of the world should start to significantly diverge. Both these things are happening already. Professional services revenue has been flat for the past four quarters, and the US revenue growth over the past six months is down to 48% versus a total revenue growth rate of 74%. These are quite impressive numbers, but still largely immaterial when compared to the current share price and remaining unpenetrated market opportunity.

Comparables & Valuation

The Valuation case against Veeva based on a direct comparable with French publicly listed competitor Cegedim or Horizontal CRM leader and partner Salesforce.com is overwhelming.

Cegedim, Veeva's French listed industry focused competitor, has a current market value of EUR 275 million, and a total enterprise value of EUR 775 million. In 2012, they generated EUR 922 million of revenue and EUR 154 million of EBITDA. So, they trade at an EV/Sales multiples of .8x and an EV/EBITDA multiple of 5x. (Note that the CRM & Strategic Data division, which competes directly with Veeva , accounted for 53% of total 2012 revenues and 40% of total 2012 EBITDA. So, it's likely implied EV is probably EUR 350-375 million range.) Now there is no doubt that Cegedim has lost some market share to Veeva. You can see that in CRM/SD division revenue numbers (down 3-5% on avg for past 2.5 years) and EBIT margins (down 300bps between 2010-2012) both of which have been steadily declining over the past 2.5 years. Do these minimal market share losses justify anything close to the size of market value differential?

Veeva trades at 35x ttm EV/Sales and 157x ttm EV/EBITDA. The disparity is ridiculous. Based on this gap, we would argue that Veeva could afford to pay up to 3x the implied current value of all of Cegedim, and then simply shut it down. This would be a better strategic move than actually trying to continue to chip away at their customer base, and they would get their Onekey master database in the process (as well as the Healthcare Professionals and Insurance and Services divisions that generate 47% of total revenue and 63% of EBIT).

Note, that co-lead underwriter #1's report does not provide a comparable to Cegedim. They only mention the name to point out that Veeva has taken CRM/SFA market share from them. The other co-lead underwriter does thoroughly cover Cegedim's business (sans valuation comparisons of course), but makes several glaring mistakes.

From co-lead underwriter #2's launch report:

"Cegedim is a Paris based company that has been in the business since 1969. It primarily caters to three sectors - life science, Healthcare professionals and Healthcare insurance. Cegedim develops and markets CRM solutions for healthcare and life science companies; it also produces medical and paramedical management solutions for health care insurance providers. With subsidiaries in over 80 countries across the world, Cegedim serves around 550 Life Science companies and over 200k users. 40% of their revenues come from the CRM product, and 10% of revenues comes from the OneKey database (MDM product)."

This description is flat out wrong. Cegedim has three divisions. The one that competes with Veeva is the CRM & Strategic Data division. This division is roughly 50% of group revenue. In this division, the CRM product currently accounts for roughly 40% of revenue (putting CRM at roughly 20% of Cegedim total revenue). The other 60% largely comes from the Compliance product, Market Research product and the Onekey database offering. Furthermore, the 200,000 users which are cited in the report (and likely played into their overstated current global rep count assumption) as a CRM user count number is actually a total touch number. This means they have roughly 60k users just using Onekey that do not use the CRM product.

To prove the mistake again, one paragraph down on the same page:

As you can clearly see they are labeling all CRM/SD group revenue as CRM revenue. (We'd also like to add that they drastically overstated Cegedim's Q2 drop in 'CRM' revenue as the timing of market research related revenue is what was largely at work here, and can be heard on the conference call discussion and re-confirmed by Cegedim's prelim Q3 revenue numbers..further evidence of the caliber of analysis performed here.)

This is a bit shocking when you consider the company is listed and according to some surveys still has the most active users at 150,000 (Frost & Sullivan Report...though our research indicates that the actual count now is closer to the 140k we used earlier) and a claimed market share lead at 37% (pg 18). The CRM/SD division of Cegedim is effectively what Veeva (we can nickname it Dendrite 2.0) wants to morph into: a mutli-solution providing technology company with $600-700 million per annum in revenue that is focused on the life sciences industry. The problem is that this business is currently getting an implied enterprise valuation of $400-$450 million and if we adjust proportionally for EBIT probably being valued at a lot less by the market; you can't ignore the magnitude of that gap.

Does that make any sense?

At trailing twelve month CRM revenue of roughly $240 million with 140k+ current users (We can also tell you based on conversations with some investors long Veeva who have taken the time to look at Cegedim that they are comparing Veeva and CRM annual revenue per seat by using all of Cegedim's CRM/SD ttm revenue of $625 million and a user count closer to 100k based on IDC bubble sizing or 200k based on failure to back-out Onekey which are both very wrong... but we've dealt with that already), Cegedim's 36% life sciences SFA market share is basically being given away by the market. By our estimate, the same piece of pie in Veeva's hands is worth 35x more. Now you know why Cegedim doesn't make it into any launch report comparable tables even though its reported revenues were used to determine Veeva's entire TAM.

The bottom line is anyone holding Veeva shares or even looking at them should be leveraging up like mad to acquire all the Cegedim stock and paper they can get their hands on. The way we see it, in this dodo market, all Cegedim needs to do is spin off CRM/SD as a life sciences 'industry cloud' pure play and their stock price should quadruple.

This is Aol/Time Warner type stuff going on here folks. The comparisons don't get much better when you look at the horizontal CRM peers.

Here is what Veeva looks like when it is compared to CRM subscription revenue king Salesforce.com (CRM).

Key Metrics	Veeva	Salesforce.com
TTM Revenue	$168 million	$3.47 billion
TTM Subscription Revenue	$106 million	$3.27 billion
Enterprise Value	$5.8 billion	$34.8 billion
EV/Rev	35x	10x
EV/Sub Rev	55x	11x

This valuation gap can only be explained by one word.

BUBBLE!

And here is what they look like when compared to the whole SaaS space on EV/2015E SALES basis.

A company like Veeva should be trading at a discount to Salesforce.com's and other leading cloud horizontal players multiples and not at a crazy premium. Also, consider that when you back out Salesforce.com's 20% cut of subscription revenue that you are really paying 68x ttm sub revenue for Veeva versus the same 11x (10.6x to 10.77x is the actual adjusted Salesforce.com multiple). We'd argue that based on everything we have shown so far a 'fair' growth story valuation of Veeva at this point would entail slapping a 1x multiple on trailing professional services revenue, and a 10x multiple on subscription revenue. This works out to a $1.1 billion enterprise value. That's the max we would be willing to pay to acquire the business today. When we account for the fact that the business is presently trading at 5.3x that number, you can appreciate why we titled this article the way we did. Even if you wanted to get really generous and pay 20x current subscription revenue and 2x professional services revenues; the stock has approximately 53% downside from recent levels.

Then you have the comparable to Veeva Twitter buddy (these industry cloud companies love to tweet each other) and partner Medidata. We could do a whole report on this company, but saying we have been long it before should be sufficient for these purposes (though definitely nowhere near these levels). If we wanted to sum up our view on the name, we'd say clinical trial management software is obviously a lot more interesting to us from a life sciences niche defensibility standpoint than a CRM focused provider in the space. Anyway, these guys are clearly enjoying the Veeva euphoria too. Just have a look at their CEO's opening remarks from its most recent quarterly result conference call...

"Thank you, Hulus. And good morning, everyone. Before I get into my prepared remarks, I'd like to take a minute to congratulate one of our business partners, Veeva Systems, their CEO Peter Gassner and the entire staff on last week's successful IPO. The success of Veeva's IPO is a testament to their strength as a company. It's also great confirmation of the life sciences opportunity and of the power of the vertical cloud-based business model. Obviously, we're big fans of that model."- Tarik Sherif, CEO

Yep, we love what Veeva is doing for our share price. Anyway, to sum this comparable up for you, MDSO generates 70% more life sciences subscription revenue than Veeva and yet is trading at approximately a $2.8 billion EV. That's a 51% discount to Veeva! Our conclusion on this disparity is that Medidata needs a better PR team. Maybe if it tweets Veeva enough, some IB will find an addressable market in which they have no products or expertise to find future revenue in. You think SaaS clinical management software can be used by Tesla to make the Model E a few years from now? We would also point out that all you SaaS life sciences investing junkies should think about something here which jumped out at us. The vast majority of life sciences companies (count wise) are still in development stage. In fact, we are in the midst of what two very well respected life sciences VC's we talked to referred to as a massive biotech IPO bubble. Using basic logic you can conclude that the one piece of SaaS software these companies need more than anything else is on-demand clinical trial management software. The one thing they have zero need for is SFA software as they have no approved drugs to sell. By this logic, Medidata is far and away the more deserving of a premium multiple industry cloud company, as their organic growth opportunity is much more believable. At present that growth rate in revenues was 3% sequentially and 32% year over year. Not as impressive as Veeva's trailing number, but then again not about to fall off a cliff either because of the 'substantial' penetration into the spend thrift big pharma sales divisions. This is the GROWTH TRAP that every sucker who has not done adequate due diligence is running (walking would be putting it too mildly) into.

What about co-lead underwriter #1's financial model?

We can't finish this valuation section without at least commenting on that. Its base-case scenario has Veeva getting to $3.7 billion in revenue by FY2028. The breakdown is CRM $1.2 billion (60% of a $2 billion market in 2028 at a zero CAGR on its current size of this TAM of $2 billion which has clearly been proven as extremely wrong), Vault/MDM $900 million (15% of $6 billion market in 2028 which means it doubles from the $3 billion they have it at today), Other Life Science $650 million (The pie grows from $39 billion to $65 billion despite the SaaS trend and they get 1% of this), and Other Verticals $945 million ($1 trillion pie becomes $1.8 and they get .06% of it).

Yes, other verticals. Veeva Systems is being sold on the 'rise of the industry cloud' story, and yet multiple times in several reports we read all we could see is analysts reaching for the clouds (more like stars) to find non-industry cloud revenue to just get their neutral rating out the door. $945 million is more than all of the revenue expected from two markets they have a 'product offering' in, and which is not currently providing a meaningful revenue contribution. Now as their current business model doesn't allow them to sell their CRM offerings into any other vertical, we are guessing these guys think investors are buying a horizontal ECM company (look out EMC and Opentext).

Does the fact that 70% of FY2028 revenue needs to come from places in which they have virtually no revenue or new offerings yet not concern you? If we gave Veeva CRM a $1 billion market cap, would you really be willing to pay $5 billion today for the revenue Vault has generated so far and what the just launched Network today might generate? Does it also not bother you that this is being marketed as an 'industry cloud' life sciences company and the financial models being put together to justify the share price require suspending that 'business model' assumption.

What if we told that after all of this the intrinsic value that its DCF produced was $32 ($36 a year from now).

Yes, 20% below the current share price after finding 70% of the company's revenue in markets it has no revenue in today, and with all their completely wrong assumptions regarding the CRM life sciences TAM.

In fact, we were impressed that they managed to resist the temptation to claim Veeva might just start developing their drugs and have a blockbuster or two in the works!

The reality suspension going on here is stunning and reminded of Thornton Mellon's first finance lecture in Back to School.

"What's a widget?"-Mellon

"It's a fictional item, it doesn't matter"-Professor

"Doesn't matter... tell that to the bank"- Mellon

The long investment thesis here is like someone coming to you and asking for a $1 billion for his Falafel chain because by 2028 it will be the leading Burger joint as well as deriving 25% of sales from a thriving construction business.

Where Could we go Wrong?

"Veeva (an Emergence portfolio company) 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 in the span of just 18 months." -Gordon Ritter, Vertical is the New Horizontal

We didn't get into a more detailed discussion of enterprise document management and master data management products in the TAM section because we believe they should be looked at alone, and wanted to make some comments on the product offering that are more relevant than the numbers being thrown around. An investor in Veeva today is buying into their track record in sales force automation CRM, and not into what they hope to accomplish in ECM and MDM. The ECM market is dominated by some large players like EMC, Open Text, IBM, Oracle, and Microsoft. In the life sciences vertical, the dominant players are EMC Documentum and Computer Sciences' Documentum based FirstDoc. Right behind these guys you have the Alfresco open source partners like TSG group. Also, to be clear, there already is a young 'fast growing disruptive' company in this space, it is called NextDocs. Their Sharepoint based ECM offering came up in several conversations with industry professionals as an up and coming life sciences ECM solution out there.

Furthermore, Cegedim's Onekey database has a commanding market share in the HCP database offering space. In either of these markets, Veeva's solutions need to be built from the ground up or acquired as they were with the AdvantageMS database. The challenges are obviously quite significant, and the path to success very different from the one taken in SFA. Veeva's SFA product is basically a thin offering built on top of Chatter and a mobile app. The products fast penetration was largely driven by cost saving. Both initially by being a pure SaaS offering (no more wasted dollars on rep seats that go unused... This has definitely been a major issue with the rapidly shrinking rep count) that allows for optimal pharma rep IT spend, and on an absolute dollar basis by being able to undercut the competition because of their Salesforce.com relationship. Cost saving on reps has been a major focus of pharma companies, but in terms of new drug submissions and compliance related offerings the game is very different. Veeva's approach with Vault has been to focus on competitors 'feature bloat' and position their offering as simple and all about easy and quick document location. Is this surprising? If your first hit was a 'thin' application you dropped on top of Chatter and an iPad application, then our guess is your view of the world is that complex 'products' that have been built over time are all bloated. Like we said before, drug approval and development are not exactly an area where going light is a proper sell. So far what we have heard from consultants and professionals in the space reflects this. Basically, a 'salesy' product culture doesn't exactly port over into compliance, regulatory data, and clinical data management. Getting life sciences companies to just upgrade current systems is hard work (EMC just acquired Sitrof Technologies, a 50 consultant strong Life Sciences ECM consultant group, to better help it sell its offering) because generally speaking this is a critical process nobody wants to mess with. If existing dominant vendors have a hard time selling slight change, you can imagine the challenges faced by a vendor seeking to get a life sciences company to switch their entire ECM system. Furthermore, when you are dealing with millions of documents spanning several years of development, standardization doesn't work. This process is at the core of what sets the life sciences companies apart from one another, and thus not suited for a one size fits all product strategy. Does one really need to dig as deep as we did to understand this? Common sense would dictate that the measuring stick for an iPad SFA app that a rep needs to be able to use in his 2 minute sit-down with a Doctor is very different from the tools being used by the Phd's living in a lab developing the next multi-billion dollar blockbuster drug.

Now go back to the Forbes Article:

"And Peter found the opportunity in content management. Let's face it, the life sciences industry involves dealing with huge amounts of documents. There are also mind-numbing regulations. In other words, it was an ideal target for the cloud."

Does this statement sound as robust now? Do GSK, Pfizer, Roche, and Novartis want their critical document management applications updated at the same time? Is a multi-tenant architecture solution ideal for them? Doesn't each one of these companies have unique (i.e. competitive advantage) ways for dealing with these 'mind-numbing regulations'? There are plenty of people who say the Vault offering is still a de minimis portion of Veeva's revenue because clearly the whole product strategy doesn't work for big pharma. They will however concede that it could take some share amongst smaller life sciences companies, but then you run into the issue of how the product is priced for that segment.(it's expensive) Does spending the majority of your annual R&D budget pursuing such a strategy, and getting this type of return make much sense? These are all questions that should be asked and can be answered by doing the type of due diligence we have done on this space.

What about Veeva Network? At a Veeva user conference in May of 2012, Veeva Network was introduced as a cloud based customer interaction repository (CIR). (You can read about it here as the PR disappeared from Veeva's website.) The product seemed like an interesting idea as far as real-time information exchange between the multi-channel marketing companies and the pharma big boys. That was until Pfizer came out at the conference and said they have no intention of sharing their customer data with anyone. What do you do when one of your largest CRM customers comes out and shoots down your new product strategy at a public user conference? Well, as you can guess Network disappeared and the project was shutdown. Surprisingly a month before Veeva announced it was going public Network was re-launched as a MDM of customer data solution. (This PR can be found on the Veeva website) This was followed by the AdvantageMS HCP database acquisition two days before the original confidential S-1 filing. So, is it a coincidence that we didn't hear anything about Network again until the IPO process got going?

Very doubtful, and to be clear this new version of Network is not some core life sciences MDM game changer.

Veeva's MDM solution is not 'true' MDM. It's more of a data service that's built specifically to address GPs, and doesn't cover specialists. It does fine for that specific application where it supports sales & marketing, but to be clear it doesn't support the broader enterprise. According to one industry expert we spoke with, any large enterprise looking for a robust MDM solution wouldn't take Veeva's Network offering seriously. They cited a top five market cap biotech company, and Veeva SFA customer, which Veeva had been reportedly lobbying to switch to Network. This biotech company passed on Network despite it being offered to them for free. The rationale being that they needed something that covered all the segments they sold into (not just GP's), and that related throughout the entire enterprise. The expert we spoke with pointed out that Veeva's often cited top 20 pharma win for Network should be taken with a grain of salt. As a rather small competitor had originally won on the merits of their MDM offering, but that all changed once Veeva acquired the AdvantageMS physician database that had teamed up with this competitor on this pharma account. They also mentioned that 2013 was a big patent expiry year for this particular pharma company, and that there are severe internal budgetary pressures driving all decisions there. Basically, cost saving rules the day as 'they are not thinking strategically'. Thus, Veeva's aggressive pricing strategy and desire to show an immediate big name customer win post-IPO was the driver here. Also, from a technical perspective, an argument can be made that the Force.com has some inherent scalability issues that will interfere with a large MDM platform. So, those seeking optimal functionality would most likely choose to build their MDM externally. Despite this one conversation standing out, the general theme across several people we spoke to in MDM was that this was a highly competitive market in which Veeva was far behind and would need to spend heavily without the ability to rely on major disruptive landscape shifting forces. The logic being that launching a cloud MDM product in the middle of 2013 is very different from coming into the CRM market as an on demand player in 2007. The major players have been responding to the shifting landscape for several years now, and thus much better positioned as far as the cloud.

Suffice to say after all the research we did on these products and segments we had a hard time understanding where the co-lead underwriter's "broadly positive" customer feedback on new offerings characterization came from. Veeva's experience with the Vault offering thus far says a lot about the inherent limitations of the vertically focused cloud model. We are approaching the three year anniversary of the Vault unveiling, and the product is still generating minimal revenue. This is a reminder that unlike a horizontal/scale focused business model; a vertically focused provider can't just flip a switch to a new revenue stream. Veeva's amazing success providing a low cost highly functional CRM tool for sales reps at the world's largest life sciences companies is not translating into the follow through ECM momentum you would expect at this point. With the recent launch of Network (which the company supposedly can't even give away to some of its top SFA customers… not that there is anything wrong with that strategy when you just launched a product... but its just that who pays $1 billion for that today when the other big new product is 3 years old and still generating de minimis revenue), we are expected to give them the benefit of the doubt in another segment (we are referring to the real world business here as the stock market has declared victory in all three product segments as well as other future unknown segments and even more unknown non-life sciences verticals from day one). We raise these issues because to some this all looks like IPO window dressing.

To make our point we call your attention back to SEC/Veeva IPO exchange:

Veeva's October 3rd, 2013 SEC Letter Response:

"1.

We note that within your common stock valuations, particularly your May 2013 and July 2013 valuations discussed on page 71, you identify the introduction of your Veeva CRM Approved Email solution as one of the factors that caused the valuation of your common stock to increase. In light of this solution impacting your common stock valuation, please explain why revenue recognized from this solution is not similarly identified and quantified as impacting revenues for the six months ended July 31, 2013.

In response to the Staff's comment, the Company advises the Staff that it did not recognize revenues from the sale of Veeva CRM Approved Email during the six months ended July 31, 2013 and therefore did not identify and quantify revenue from Veeva CRM Approved Email as a factor affecting revenue growth."

And some more from Veeva on how a product announcement boosts valuation:

"The actual revenues used for the April 30, 2013 and June 30, 2013 valuations were also not impacted by actual revenues from Veeva CRM Approved Email [***]. In addition, forecasted revenues used for the April 30, 2013 and June 30, 2013 valuations were not impacted by forecasted revenues for Veeva CRM Approved Email. Rather, the impact of potential sales of Veeva CRM Approved Email over the longer term was a subjective factor considered as part of the April 30, 2013 and June 30, 2013 valuations. The Company believes that while the introduction of the new solution did not affect the April 30, 2013 and June 30, 2013 interim period results, it believes that it was appropriate to consider this new product introduction as a factor that contributed to an increase in the valuation from January 2013 to May 2013."

This exchange is notable with respect to Network because strategic moves made with an eye towards being able to show an 'addressable' future market for an IPO can become a headache down the road. Going back to Mr. Ritter's quote, launching two new products in 18 months is not a good thing if you have to abandon one immediately and the other is still struggling to generate revenue after several years. That's why we prefer this quote from Intuit founder Scott Cook:

"For everyone one of our failures, we had spreadsheets that looked awesome."

This is why we believe Veeva's laser focused approach in CRM as well as low-risk leading platform partner strategy are nowhere to be found in this Network offering.

These views notwithstanding, significant expansion over time into these two related areas could provide a decent revenue boost. However, by accounting for the diversified nature of Cegedim's CRM/SD division, (Cegedim claims 44% global market share in HCP master database) that is currently being valued at 6-7% of Veeva's EV, you must realize that this is not exactly a 'move the needle' revenue opportunity (or again that you should be buying Cegedim shares like they are going out of style). This exemplifies the beauty of a bubble. Even if Veeva achieves very meaningful penetration with their offerings in all these categories, the stock is still extremely overvalued today. So, this is that very rare moment where we don't believe you can go wrong being short the stock here.

In fact our expectation is that if Veeva management plays their cards right, they will be all about inorganic growth from here on out. They will probably boost CLM, acquire related BI offerings that can be cross-sold as analytical tools for their CRM, and most likely pick-off/consolidate some of the smaller SFA players out there at some point. This is of course dependent on their currency remaining obscenely overvalued, but in any event this seems like the no-brainer roadmap for where future 'growth' will come from.

Veeva Valuation Conundrum (How is it trading here?)

After reading all this, one wonders how the stock is trading where it is trading. This is where we can share some added market insight. Some very smart investors have gotten killed shorting certain SaaS stocks in the last year. We'd argue some have not understood certain models, and others who did just had very bad timing. Either way if the 'smart' money got killed shorting SaaS companies that are losing money, we can conclude that when one came along that was profitable they simply determined taking a close look would be a waste of their time.

YES, THE EXPLANATION IS THAT SIMPLE.

As one very smart investor we know put it, "if I can't make money shorting the one's with no earnings, why would I even look at the one generating a profit". Yet, had they really looked they would have found something seen time and time again throughout history: A vertically focused software company with tremendous success and penetration in their core market, talking about how they are making progress entering new segments. They would have remembered how consistently the market valued these companies at large (we've been long a few in our careers) discounts to horizontals, and how quickly they moved on from them. It is at this point that they would have ultimately reached the same conclusions we did here. Namely, that this stock and this business are now so divorced from each other that there is only one possible future outcome and that is a very steep decline in the share price.

How to Play This

This is what we would describe as a dream short. All the good news in the world still equates to 65%-80% downside in the share price. Our fair value is $8 (and in a sane world we'd say $4...yes an EV $300 million would be what reality would look like) as we are giving them the benefit of the doubt as far as their growth strategy goes. Our strategy would be simply short this stock in size and wait for more people to start focusing on everything we have raised in this piece versus the puff coverage that is out there now. It is such a good short that you actually want it to stay elevated at these levels or go even higher so that you can increase exposure. If you are really cautious and worried that this bubble somehow won't pop, you can always pair it with a Salesforce.com long position or a ridiculously priced Cegedim to hedge market risk. There is no way Veeva's market valuation can continue to maintain its relative value versus Salesforce.com, Medidata or Cegedim without drawing a lot more eyeballs. We are 100% certain of that, and in the market you can very rarely make such a statement!

But for the more short-term oriented…

Look at how Rocket Fuel (FUEL) (whose scalable model we are a fan of) and Tableau (DATA) have performed on 'huge beat' earnings, and the overall deflating sentiment that seems to be seeping into SaaS land. Anyone notice that Netsuite and ServiceNow have done since they beat big? Are you paying attention to Workday shares as the market notches new high after new high? Did Facebook (FB) and LinkedIn (LNKD) just quietly drop 18-20%? If there is no shortage of people downgrading Twitter (TWTR)... what will the view of Veeva be once its put under the microscope?

Also consider that despite our criticism of Tableau, we can still not 100% guarantee that these guys cannot grow their product offering into a mass market like a mini-Excel. They have built it from the ground up, and it's conceivable (though highly unlikely) that a mega-cap company might one day be willing to overpay in an Instagram fashion for a company like this. Workday (WDAY) can and is expanding beyond HRMS. Netsuite could become a bigger and bigger nightmare for SAP. When it comes to Veeva, you can't make any of these arguments. Complete market domination still provides an excellent opportunity for anyone shorting the stock from these levels. It doesn't get more perfect than that. So, yes while we may think Chegg's (CHGG) business model doesn't work or that Angie's List (ANGI) is nothing but a money pit, neither of those names is nearly as appealing to short here as the profitable Veeva.

We'd also like to point out that this Veeva deep dive got us thinking about something very general as far as SaaS. Basically, that all sell-side models are probably running on some very faulty assumptions with respect to TAM's for these companies. The trend of moving to the cloud is being driven by 40-60% annual savings in many areas versus legacy on-premise. There is a substitution effect going on here that is commoditizing software and it is a function of both higher efficiency thanks to on-demand as well as the cloud enabled pricing model. Basically, every new SaaS dollar eliminates a few dollars in spend elsewhere. Yet every SaaS model we have looked at over the past year is dominated by the largely on-premise software market dollar size and using historical CAGR's going forward. This makes no sense. In the short term, the whole planet is still thinking the pie will grow, when in fact there is a deflationary storm building here courtesy of SaaS. Hardware came first, now it is software's turn. In the very long run this is great for SaaS, but over the short to immediate term it probably means the market is going to experience some serious SaaS related indigestion as valuations are reassessed.

But who cares about all this... according to Mad Money this is a buy here...

"Veeva makes software that keeps track of pharmaceutical salespeople's comings and goings with physicians," Cramer explained. Although the Mad Money host hates to see anyone lose a job, the software could become quite popular with drug companies. "Who knows how many high-priced non-revenue producing positions that can replace?"

Does Cramer even understand this product is a utility for the reps i.e. fewer reps is not the best thing? And the 'software could become quite popular'? You think he has any idea of their current rep penetration? Did this blurb just make our entire investment case for us?

How about this Bloomberg interview with Emergence Capital's Gordon Ritter. Just to show how clueless everyone who thinks this was a 'great IPO' is on Veeva, watch from 1:45 of the 3 minute interview.

"Am I right to think of this company as essentially a company whose software manages drug trials and that's it?"-Bloomberg Interviewer

Is there really much more to say? We'd also point out that Mr. Ritter does not bother shooting him down (can you blame him with all the love they are getting), and instead focuses on shooting down the 'that's it' part of the question by talking about how they are a multi-product company. You'd guess saying we have nothing to do with life sciences development software, (that is our close Twitter buddy Medidata's market) and that we get 95% of our sub revenue from an iPad App for drug reps would have been too much ask.

Anyway, thanks to the mania in this space, there are solid businesses that clearly offer more downside than broken businesses. Yes, it is the slow knife that cuts the deepest.

P.S. We've spent the better part of the past month researching and developing this thesis. This write up went through all kinds of revisions as the commitment to providing something substantive on the name overshadowed our desire to just run with a 'view' that we figured was right within two days of work. It is not perfect. If we took more time we could find several more people to talk to and issues to cover, however, at this juncture we'd welcome other inquiring minds take as close a look at it as we have. To be quite frank, after four weeks of watching the press coverage this gets on CNBC and reading what is considered research on the name; we have started to feel that there is some sort of bizarre Veeva delusional disorder out there. We needed to rid ourselves of this temporary obsession, and let Mr. Market resolve this as only he can.

On a more positive note, we'd like to thank all the people whose contributions made this possible. As for those who are not going to be happy with criticism of their work, well, if you are looking for someone to blame you only need to look in the mirror.

P.P.S. Mr. Bernanke this is what happens when you dope the entire financial system. Underwriters get careless, investment professionals stop doing analysis and the financial media reinforces all of this. It's called a BUBBLE. Nice work!

References

-Morgan Stanley Veeva Systems "Rise of the Industry Cloud" report November 11 2013 (co-lead underwriter #1)

-Deutsche Bank Initiation of Coverage on Veeva, dated November 11 2013 (co-lead underwriter #2)

http://www.veeva.com/resources/getting-sassy-in-pharma/

http://www.forbes.com/sites/tomtaulli/2013/10/16/veeva-ceo-customer-dissatisfaction-is-my-opportunity/

http://seekingalpha.com/article/1753182-veeva-systems-a-profitable-cloud-offering

http://www.sec.gov/Archives/edgar/data/1393052/000119312513400469/d541293d424b4.htm

http://www.sec.gov/Archives/edgar/data/1393052/000119312513406605/d615271dex31.htm

http://www.cegedim.com/communique/Cegedim_slidesResults_FY2012_ENG.pdf

http://www.cegedim.com/finance/documentation/Documents/Deutsche-Bank_2012-06-14_oto.pdf

http://www.cegedim.com/communique/Cegedim_slidesResults_2Q2003_ENG.pdf

http://www.phillytechnews.net/2013/05/veeva-systems-holds-customer-summit-in.html

http://www.forbes.com/sites/louiscolumbus/2013/06/18/gartner-predicts-crm-will-be-a-36b-market-by-2017/

http://mimage.opentext.com/alt_content/binary/pdf/Gartner-Magic-Quadrant-for-Enterprise-Content-Management-23-09-2013.pdf

http://blog.softwareinsider.org/2013/05/06/mondays-musings-the-controversy-surrounding-gartners-crm-market-share-analysis/

http://www.microsoft.com/en-us/dynamics/crm-price-comparison.aspx

http://www.ysura.com/pricing/

http://www.zoho.com/crm/comparison.html

http://idcdocserv.com/HI240273e_medidata

http://www.sec.gov/Archives/edgar/data/1393052/000095012313007208/filename9.htm

http://crm.cegedim.com/Docs_Reports/CRM/Cegedim_Frost_and_Sullivan_2013_Mobile_SFA_Award.pdf

http://seekingalpha.com/article/1769202-medidata-solutions-management-discusses-q3-2013-results-earnings-call-transcript

http://www.youtube.com/watch?v=shu2roMXcUk

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

http://sparkblog.emc.com/2013/06/emc-acquires-sitrof-technologies/

http://www.businesswire.com/news/home/20120515005506/en/Veeva-Systems-Announces-Cloud-Based-Customer-Interaction-Repository

http://www.veeva.com/resources/veeva-systems-introduces-complete-cloud-based-customer-master-solution-for-life-sciences-companies/

http://www.sec.gov/Archives/edgar/data/1393052/000119312513389320/filename25.htm

http://www.cnbc.com/id/101212109?__source=yahoo%257cfinance%257cheadline%257cheadline%257cstory&par=yahoo&doc=101212109%257cCramer%27s+disruptive+tech

http://www.bloomberg.com/video/what-s-behind-veeva-s-early-public-success-v94nzrNNT0yuio3AdJ5piw.html

http://www.veeva.com/resources/idc-marketscape-worldwide-life-science-crm-software-2013-vendor-assessment/

DISCLAIMER

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 Veeva Systems 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.

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 publication, and we may be long, 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.

suhailcapital.com

Disclosure: I am short VEEV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are also long CGMJF, CRM, and AMZN

Disclosure: I am short VEEV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Veeva Systems: SaaS's Biggest Bubble And Tech's Best Short

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