Should You Buy American Well Shares After 28% Pop?
Author: Tim Phillips
Date: January 28, 2023
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?
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 ofLivongo Health Inc.
This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.
This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.