Medidata Solutions: Attractive Addressable Market, But More Work Is Needed

Large addressable markets are all well and good, but delivering on those opportunities isn’t always so easy. That’s a key challenge for Medidata Solutions (MDSO), as this company has an excellent electronic data capture platform for pharmaceutical clinical trials and has built out a strong suite of ancillary products, but must continue to cross-sell and get customers to subscribe to those additional products to maximize revenue and margins. Likewise, while Medidata has the ingredients in place for strong data analytics offerings, designing the products and getting customers onboard will take time.

I liked the opportunity I saw earlier this year with Medidata and the shares are up more than 10% since then. The valuation is somewhat less compelling now; although there is still some decent upside at today’s price, I’m a little concerned that slowing subscription growth and the need to spend more on sales and marketing to revitalize growth could weigh on sentiment. Still, given the long-term cross-selling and data-driven product opportunities, I’d keep an eye on this name in case the stock price and underlying valuation diverge again.

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Medidata Solutions: Attractive Addressable Market, But More Work Is Needed

Cross-Selling Can Drive Meaningful Growth For Medidata Solutions

There's really no "steady state" for growth tech companies, and while Medidata Solutions (MDSO) has built a strong business with its cloud-based platform for the management of clinical development programs, management cannot afford to rest on its laurels. That's particularly true given that revenue growth decelerated through 2017 and both subscription revenue and backlog growth came in a little slower than expected.

With around 50% share and more than 80% of the top pharma companies in hand as clients, Medidata's growth is likely to come more from expanding its share of wallet with customers and selling them on the value of its offerings beyond its core RAVE electronic data capture (or EDC) platform. Given the increasing complexity and cost of clinical development, I believe Medidata has a better than fair chance of doing that, but rising competition is a threat. Even so, while I wouldn't care Medidata conventionally cheap, the valuation is reasonable enough to merit a closer look.

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Cross-Selling Can Drive Meaningful Growth For Medidata Solutions