Better Buy: Veeva Systems vs. Hubspot


By David Jagielski, MotleyFool

Two of the hottest stocks over the past five years have been Hubspot (NYSE:HUBS) and Veeva Systems (NYSE:VEEV). The former is up more than 260%, while the latter is up an incredible 440%, leaving the paltry S&P 500 and its 20% return in the dust.

In 2020, however, concerns surrounding the coronavirus pandemic have sent the stocks down along with the broader market. And while both have dipped in value this year, that doesn't mean that both are good buys moving forward. Let's take a closer look to see which stock may be more likely to recover in 2020.

Will a lack of growth in 2020 send Hubspot's stock crashing down?

Hubspot's been a growth machine over the years, with revenue rising from $182 million in 2015 to $675 million this past year. That's a compounded annual growth rate of 39% over the past four years. The company sells its growth platform to customers on a subscription basis to help them grow their businesses. In 2019, subscription-related revenue accounted for 96% of the company's top line, which is in line with previous years.

The concern for investors is that as the coronavirus continues to spread and companies struggle to stay afloat, cutting back expenses will be the focus, and a platform to help drive consumer conversions could be near the top of the list to go. That can pose a threat to Hubspot's business in the near future, as sales and marketing may be less of a priority for companies moving forward. The good news, however, is that Hubspot doesn't have significant exposure to any one customer. As of Dec. 31, no customer made up more than 10% of its net accounts receivable balance.

Two thumbs pointing in opposite directions with the words Profit or Loss


Hubspot is reducing prices and offering free tools to customers to help them through this difficult time. But that's not going to do any favors for Hubspot's bottom line, which has been in the red every year. However, from a cash-flow perspective, the company may be in good shape, as it's generated positive free cash flow in each of the past three years.

Hubspot was trading at around 100 times its forward price-to-earnings (P/E) even before the markets went over a cliff. It's still an expensive buy today, and it's only fallen 17% in 2020, compared to the S&P 500 which is down 21%.

Can Veeva avoid the same fate?

Veeva's not in a much different boat than Hubspot. It's banking on its customer relationship management (CRM) software to drive a lot of its sales growth, and that may be in short supply this year. The company reported its year-end results on March 3, where its fourth-quarter sales were up 34% year over year. Sales for the year reached more than $1.1 billion and were a 28% improvement from the previous fiscal year.

Like Hubspot, the bulk of Veeva's revenue comes from subscriptions. In fiscal 2020, $896 million, or 81%, of Veeva's revenue came from subscription services. But a key difference is that unlike Hubspot, Veeva posted a profit of $301 million, for a profit margin of over 27%. That was also a 31% improvement from last year's net income of $230 million.

A key advantage for Veeva is that it serves biopharmaceutical companies and its focus is on care providers. That's a sector of the industry that may not be prone to significant adversity, and that may even see an uptick in sales as healthcare companies work around the clock to contain the coronavirus pandemic.

Veeva is also a cheaper stock than Hubspot, trading at a forward P/E of around 50. Its stock is down a modest 2% so far in 2020.



Why Veeva is the better buy today

Veeva has less risk in the near term related to the coronavirus, and its financials are also in much better shape than Hubspot's. It's already profitable and its stock is also far less expensive than Hubspot's.

From a growth perspective, both stocks have a lot to offer, but Veeva is less vulnerable given its focus on healthcare. Overall, all signs point to Veeva outperforming Hubspot from here on out, and it's easily the better of the two growth stocks to buy today.

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