“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 Systems Inc (NYSE:VEEV). 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)
Veeva Short Thesis (44 pages_ Nov ’13)VEEV Short Thesis Presentation (23 slides_ Nov ’13) (2)
[drizzle]Veeva Short Thesis (44 Pages Nov ’13) by ValueWalk.comVEEV Short Thesis Presentation (23 Slides_ Nov ’13) (3) by ValueWalk.com