AppFolio vs. Veeva: Which Cloud-Based Software Solutions Stock is a Better Choice?

Veeva Systems Inc. (VEEV) and AppFolio, Inc. (APPF) are two budding players in the cloud-based software industry. VEEV, in Pleasanton, Calif., provides cloud-based software solutions for the global life sciences industry. The company offers enterprise applications, multichannel platforms, customer relationships, and content management solutions. Goleta, Calif.-based APPF provides industry-specific cloud-based business software solutions, services, and data analytics for small- and medium-sized businesses (SMBs) in the property management and legal industries.

Increasing adoption of secure cloud-based software solutions across several industries to provide efficient services to their customers and facilitate the continuation of remote working amid the resurgence of COVID-19 cases should drive the cloud-based software industry’s growth. The global cloud computing market is expected to grow at a 19.1% CAGR to  $1.25 trillion by 2028. So, both SNOW and VEEV should benefit.

While APPF has declined 31.2% in price year-to-date, VEEV has surged 12%. VEEV is a clear winner with 2.4% price gains versus APPF’s negative returns in terms of their past three months’ performance. 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

Recent Financial Results

For its fiscal second quarter, ended July 31, 2021, VEEV’s total revenues increased 28.8% year-over-year to $455.59 million. The company’s non-GAAP gross profit came in at $345.42 million, up 29.5% from the prior-year period.

VEEV’s non-GAAP operating income was  $191.59 million for the quarter, representing a 32.7% increase from the prior-year period. While its non-GAAP net income increased 31.2% year-over-year to $152.67 million, its non-GAAP EPS increased 30.6% to $0.94. As of July 31, 2021, the company had $1.06 billion in cash and cash equivalents.

For its fiscal second quarter, ended June 30, 2021, APPF’s revenue increased 9.9% year-over-year to $89.04 million. The company’s loss from operations was  $1.15 million, down 81.9% from the year-ago period. However, APPF’s net income was  $2.02 million, down 89.5% from the prior-year period. Its loss per share decreased 88.9% year-over-year to $0.06. The company had $48.61 million in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

VEEV’s EBITDA and levered free cash flow have grown at CAGRs of 35.8% and 43.4%, respectively, over the past three years. The company’s revenue has grown at a 29.4% CAGR over the past three years.

Analysts expect VEEV’s EPS to increase 12.4% year-over-year in the current quarter, ending October 31, 2021, 21.5% in the current year, and 14.1% next year. Its revenue is expected to grow 23.4% in the current quarter, 25.2% year-over-year in the current year, and 25.2% next year. The stock’s EPS is expected to grow at a 17.9% rate over the next five years.

In comparison, over the past three years, APPF’s EBITDA and levered free cash flow have declined at CAGRs of 33.1% and 41.5%, respectively. The company’s revenue has increased at a 25.2% CAGR over the past three years.

APPF’s EPS is expected to decline 96.1% year-over-year in the current quarter, ending September 30, 2021, and 90.6% in the current year, and rise 81.7% next year. Its revenue is expected to grow 11.2% year-over-year in the current quarter, 13.5% year-over-year in the current year, and 19.2% next year. Analysts expect the stock’s EPS to grow at a 25% rate per annum over the next five years.

Profitability

VEEV’s trailing-12-month revenue is almost 5.1 times what APPF generates. VEEV is also more profitable, with a 72.6% gross profit margin versus APPF’s 60.3%.

Also, VEEV’s ROA and ROTC of 9.7% and 12.1%, respectively, compare with APPF’s negative returns.

Valuation

In terms of non-GAAP forward P/E, APPF is currently trading at 283.94x, which is 69.9% higher than APPF’s 283.94x.

In terms of forward EV/EBITDA, APPF’s 100.36x is 73.7% higher than VEEV’s 57.78x.

POWR Ratings

While APPF has an overall D grade, which translates to 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.

In terms of Quality, VEEV has been graded an A, which is consistent with its higher-than-industry profitability ratios. VEEV has a 28.9% trailing-12-month EBITDA margin, which is 382.8% higher than the 6% industry average. However, APPF’s C grade for Quality is in sync with its lower-than-industry values. The company has a 2%  trailing-12-month EBITDA margin, which is86.7% lower than the 14.7% industry average. VEEV has an A grade for Sentiment, which is consistent with favorable analyst estimates of its earnings. Analysts expect VEEV’s EPS to grow 12.4% year-over-year to $0.88 in the current quarter, ending October 31, 2021. However, APPF’s D grade for Sentiment is in sync with analysts’ forecast that its EPS will decline 96.1% year-over-year to $0.16 in the current quarter, ending September 30, 2021.

Of the 83 stocks in the Medical - Services industry, VEEV is ranked #16. APPF is ranked #105 of 147 stocks in the  Software - Application industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated APPF and VEEV for Growth, Value, Momentum, and Stability.

Get all APPF ratings here. Also, click here to see the additional POWR Ratings for VEEV.

Click here to check out our Software Industry Report for 2021

The Winner

While rising demand for cloud-based software platforms should benefit both APPF and VEEV, we think its lower valuation and better analyst sentiment 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 Software - Application industry, and here for those in the Medical - Services industry.

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

VEEV shares were unchanged in after-hours trading Friday. Year-to-date, VEEV has gained 10.98%, versus a 18.83% 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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