Here's What Pushed Veeva Systems Inc. Up 39% in the First Half of 2018

What happened

Shares of Veeva Systems Inc. (NYSE: VEEV), the life science industry's leading cloud service provider, rose 39% during the first half of the year, according to data from S&P Global Market Intelligence. A better-than-expected launch of the company's Vault service keeps giving investors reasons to smile.

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So what

The stock surged furthest this year when the company announced a strong finish to fiscal 2018, which ended in January. Total subscription revenue rose 28% year over year to $554.4 million.

Looking past the top-line growth reveals an even rosier picture. Veeva needs to share revenue from its customer relationship management (CRM) service with Salesforce.com, but the company fully owns its suite of clinical data management products marketed under the Vault brand. During the three months ended in April, Vault revenue comprised 44% of the top line, up from 37% during the same period last year.

Veeva's a growing company with moving pieces, but it sure looks as if a revenue mix shifting toward Vault is widening profit margins. During the fiscal second quarter, the company reported a 32% operating margin that topped the high end of previously issued guidance.

Now what

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Pharmaceutical companies throw off reams of data that needs to remain accessible for a long time, which makes Veeva's services awfully sticky. Without a viable competitor for clinical data management, Vault could become the Microsoft Office of the biopharma industry and we can already see signs of a network effect.

Over the past two years, revenue growth has outpaced sales, general, and administrative (SG&A) costs, and the marketing team doesn't seem to have any trouble retaining clients. Earlier this year, the company reported a 121% revenue retention rate that shows existing customers are sticking around and adding services. If Veeva shows further signs it can dominate its niche in the second half of the year, this stock could continue its impressive climb.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Salesforce.com and Veeva Systems. The Motley Fool has a disclosure policy.

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