Tele-medicine provider American Well Corp (NASDAQ: AMWL), also known as AmWell, popped 28% on its trading debut on Thursday. But should long-term investors like the company?
Tim’s Take:
AmWell hits the market not too long after the US$18.5 billion mega-merger between two of the market’s favourite telehealth providers; Teladoc Health Inc (NYSE: TDOC) and Livongo Health Inc (NASDAQ: LVGO).
The company raised US$742 million and priced shares at US$18 apiece. Shares finished trading at just a shade over US$23.
It’s probably the ideal time for AmWell to go public. Given the Covid-19 pandemic, telehealth consultations have understandably soared.
Evidence of this is clear from AmWell’s numbers. Since its launch back in 2006, the company says it has powered more than 5.6 million telehealth visits.
Amazingly, 2.9 million of those have come in just the first six months of 2020. Globally, the telehealth services market is estimated to be worth US$266.8 billion by 2026 – representing a compound annual growth rate (CAGR) of 23.4% during 2018-2026.
AmWell has a tiny slice of this market. Its revenue for the first six month of the year was up 77% year-on-year to US$122 million.
Clearly, the company is growing fast. It’s also got high-profile backers. Alphabet Inc’s (NASDAQ: GOOGL) Google Cloud unit took a stake worth US$100 million in the firm, which will see AmWell use Google Cloud for its telehealth service needs.
Massive addressable market
Started by two brothers – Ido and Roy Schoenberg – the company has spent most of its existence building up connections between healthcare providers, such as doctors and hospitals, to healthcare systems and plans.
Clearly, the US can do a lot better in terms of its healthcare spending efficiency. Notoriously bloated, the US healthcare spending makes up around 18% of GDP.
Compare that to the UK’s healthcare spending of 10% of GDP, albeit with its publicly-funded system. You can see how telehealth in the US has the potential to deliver cost-effective yet high-quality healthcare solutions.
However, AmWell operates in a crowded space with numerous competitors beyond just Teladoc. One other issue the sector faces is a sustainable path to profitability.
That’s likely to come from subscription revenue and, thus far in the pandemic, the spike in visits do not necessarily translate into higher revenue or better profitability.
That’s one conundrum that AmWell will have to answer; is there a sustainable path to profitability? Beyond that, the company has broader structural tailwinds in its favour.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Livongo Health Inc.
