Stock Market Analysis

Will This Be the Next Big Healthcare IPO?

One new telemedicine service has been given a boost from a massive stock-market player.

This article originally appears on The Motley Fool, written by Zhiyuan Sun.

Many patients who first used telemedicine during COVID-19 containment measures such as quarantines and lockdowns are now rapidly adopting it as a regular part of accessing healthcare. Consumers are realizing that virtual physician visits have many benefits, including saving time on travel to a doctor’s office and being able to express health concerns from the comfort of your own home. In six years’ time, the global telemedicine market is poised to reach $175 billion, from $45 billion last year.

One of the most anticipated IPOs this year is that of Amwell, a telemedicine company that received a $100 million investment from Alphabet (NASDAQ:GOOGL) subsidiary Google to expand its virtual platform. While Amwell has yet to disclose the exact price and number of shares to be offered in the IPO, which it confidentially filed for in June, investors are already excited about the company’s outlook. 

What’s so special about this IPO?

Amwell is a virtual health consultation platform that allows patients to meet with certified physicians over secure video chat. The company offers 24/7/365 days teleconferencing for primary care, urgent care, and psychiatry, with no appointment necessary. Patients are able to choose their physician and pharmacy from a database before their session begins. For what it is able to provide, Amwell’s pricing is competitive, costing up to $59 for urgent care, $95 for an online therapy session, and $200 for a psychiatric visit.

The wait time to see a physician is usually less than 10 minutes. Since the consultation occurs at home, patients who use Amwell, on average, save 2.5 hours compared with office visits. The app and platform are available on almost any device, from mobile phones to desktop computers and in-person kiosks.

The company currently covers 55 health plans among 36,000 employers. This schema covers approximately 80 million people. Management also expects to expand into government plans, such as Medicare and Medicaid, in the near future, although no actual deals have yet materialized. 

In the first half of 2020, Amwell’s platform hosted 2.9 million doctor’s visits. During the height of the COVID-19 pandemic in April, more than 40,000 virtual consultations occurred every day via Amwell’s service, compared with just 2,900 per day during April 2019. Amwell’s year-over-year revenue grew by 77% during the period, to $122.3 million.

During the same time, the company’s net loss increased from $41.6 million to $113.4 million, primarily because of stock compensation expenses of $65.7 million. The company is heavily upgrading its platform to ensure it can deliver a top-quality telemedicine experience, having reinvested more than $30 million of its revenue into research and development (R&D) expenses since January. Even though its net loss seems cumbersome, Amwell still has over $232 million in cash, no debt, and about $30 million in investments, and should have IPO money on its balance sheet soon to help make up for any shortfalls.

The takeaway for investors

Amwell is undoubtedly facing formidable opponents in the telemedicine sector. The most notable are Teladoc Health (NYSE:TDOC) and Livongo Health (NASDAQ:LVGO). Earlier this month, the two giants announced their merger, which will create a $30 billion telehealth company. Teladoc’s market opportunity should include about 70 million people who may use the company’s platform for telehealth or use Livongo’s app (largely to manage their diabetes). 

If the deal closes, the two companies expect to generate around $1.3 billion this year, representing an annual increase of 85%. In terms of profitability, Livongo and Teladoc project their combined earnings before interest, taxes, depreciation, and amortization (EBITDA) will surpass $120 million. 

An obvious perk of the merger will be the synergy between the two services, as patients with chronic conditions who seek consultation with physicians on Teladoc’s platform can receive a referral to sign up for Livongo’s services. By 2025, the companies expect synergies to bring in up to $500 million in revenue.  

Should Amwell’s IPO terms value it at less than Teladoc in terms of price-to-sales, investors who missed the rally will be able to grab shares of an excellent telehealth company for a fantastic price. Keep an eye out for Amwell, as it may appear soon on your public healthcare company watchlist. 

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above Read our full disclosure policy here.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Livongo Health Inc, and Teladoc Health. The Motley Fool has a disclosure policy.

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