Snowflake vs. Veeva Systems: Which Cloud Stock is a Better Buy?

Snowflake, Inc. (SNOW) in  San Mateo, Calif., and Pleasanton, Calif.-based Veeva Systems Inc. (VEEV) are two prominent players in the cloud-computing industry. SNOW provides a cloud-based data platform that enables customers to consolidate data into a single source to drive business insights, build data-driven applications and share data. In comparison, VEEV provides cloud-based software solutions for the global life sciences industry. The company offers enterprise applications, multichannel platforms, customer relationships, and content management solutions.

Because the resurgence of COVID-19 cases due to the spread of its  Delta variant is causing delays in office-reopening plans, cloud companies are expected to witness high demand for their products and services. Furthermore, amid the ongoing digital transformation of almost every industry, the need for safe and efficient cloud platforms should drive the cloud industry’s growth. The cloud computing market is expected to grow at an 18% CAGR to $303.07 billion by 2025. So, both SNOW and VEEV should benefit.

But while SNOW’s shares have gained 5.8% in price year-to-date, VEEV has surged 21.4%. In terms of their past nine months’ performance, VEEV is a clear winner with 19.5% price gains versus SNOW’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Click here to check out our Cloud Computing Industry Report for 2021

Latest Developments

On July 14, 2021, SNOW unveiled its Unified ID 2.0 to help organizations easily enrich audience data without sharing consumers’ personally identifiable information (PII). With Unified ID 2.0 support, SNOW’s customers should be able to optimize their data-first advertising strategies by directly activating audiences on any platform that has adopted Unified ID 2.0.

On August 3, 2021, VEEV acquired Learnaboutgmp, a leading provider of accredited GxP training for life sciences. By combining Learnaboutgmp’s robust content with VEEV’s Veeva Vault Training, an industry-specific learning management application, the companies hope to provide a more efficient, end-to-end training solution to achieve complete GxP compliance. VEEV is looking forward to boosting its market reach with this offering in the near term.

Recent Financial Results

SNOW’s revenues for its fiscal second quarter, ended July 31, 2021, increased 104.4% year-over-year to $272.20 million. The company’s gross profit came in at $189.75 million, up 125.4% from the prior-year period. Its operating loss declined 62.4% year-over-year to $21.90 million. While its net loss increased 144.4% year-over-year to $189.72 million, its loss per share decreased 51.1% year-over-year to $0.64. As of July 31, 2021, the company had $698.55 million in cash and cash equivalents.

For its fiscal first quarter, ended April 30, 2021, VEEV’s total revenues increased 28.6% year-over-year to $433.57 million. The company’s gross profit has been reported at $326.79 million, up 30.7% from the prior-year period. VEEV’s non-GAAP operating income was  $181.36 million for the quarter, representing a 39.8% year-over-year improvement. Its non-GAAP net income has been reported at $146.88 million, up 39.7% from the prior-year period, and its  non-GAAP EPS increased 37.9% year-over-year to $0.91. The company had $1.18 billion in cash and cash equivalents as of April 30, 2021.

Expected Financial Performance

Analysts expect SNOW’s revenue to increase 91.4% year-over-year in the current quarter, ending October 31, 2021, 93.7% in the current year, and 64.1% next year. Its EPS is expected to remain negative in the coming quarters of the current year and next year. The stock’s EPS is expected to decline at a marginal rate per annum over the next five years.

VEEV’s revenue is expected to increase 21.8% year-over-year in the current quarter ending October 31, 2021, 24.4% in the current year, and 18.7% next year. Its EPS is expected to grow 19.7% year-over-year in the current quarter, 18.9% in the current year, and 15.4% next year. VEEV’s EPS is expected to grow at a 15.5% rate per annum over the next five years.

Profitability

VEEV’s trailing-12-month revenue is almost 1.8 times what SNOW generates. VEEV is also more profitable, with a 72.5% gross profit margin versus SNOW’s 58.5%.

Also, VEEV’s 19.3%, 9.3%, and 12% respective ROE, ROA, and ROTC values compare with SNOW’s negative values.

Valuation

In terms of trailing-12-month Price/Sales, SNOW is currently trading at 91.11x, which is 184.5% higher than VEEV’s 32.03x.

And in terms of trailing-12-month EV/Sales, SNOW’s 98.94x is 218.9% higher than VEEV’s 31.02x.

POWR Ratings

While SNOW has an overall F grade, which translates to Strong Sell in our proprietary POWR Ratings system, VEEV has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

VEEV has a B grade for Sentiment, which is consistent with favorable analyst estimates regarding its EPS growth. Analysts expect VEEV’s EPS to grow at a 15.5% rate per annum over the next five years. However, SNOW’s D grade for Sentiment is in sync with analysts’ expectation that its EPS will decline marginally per annum over the next five years.

In terms of Quality, VEEV has been graded an A, which is in sync with its higher-than-industry profitability ratios. VEEV’s 26.8% trailing-12-month EBIT margin is 761.4% higher than the 3.1% industry average. However, SNOW’s C grade for Quality is in sync with its negative trailing-12-month EBIT margin.

Of the 83 stocks in the Medical - Services industry, VEEV is ranked #19. In comparison, SNOW is ranked #71 of 74 stocks in the D-rated Technology – Services industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated SNOW and VEEV for Growth, Value, Momentum, and Stability. Get all SNOW ratings here. Also, click here to see the additional POWR Ratings for VEEV.

The Winner

While both VEEV and SNOW should benefit from the industry tailwinds in the long run, we think its higher profitability and lower valuation make VEEV a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology – Services industry, and here for those in the Medical - Services industry.

Click here to check out our Cloud Computing Industry Report for 2021

SNOW shares were trading at $298.90 per share on Monday afternoon, up $1.19 (+0.40%). Year-to-date, SNOW has gained 6.22%, versus a 21.93% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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