Financial Highlights
BFLY | App Downloads Signal Lack of Cushion for Near-Term
Background
Despite a well-reviewed product with a wide array of utilities and a dedicated user base, we have chosen to move Butterfly Network (BFLY) down from an Active Long to the Long Bench. Originally, we had thought the sales force expansion would be generating traction alongside the company’s productive e-commerce platform. Although we can't rule out the possibility of a large health system deal occurring, the current trend in app downloads does not reflect an acceleration in purchases. At the beginning of the quarter, we expected BFLY to benefit from a shift to Macro Quad 2, but that has not been the case. The multiple has contracted over the past couple quarters, currently reflecting a 2022 EV/NTM Sales multiple of 3.8x, down from its high point of over 7.5x in June of 2021.
Thesis
Based on our most recent update, we expect that BFLY could underperform consensus in 3Q21 and significantly raise the bar for 2022. The weakness we are seeing now will create a larger ramp for the company to achieve full year guidance, likely leading to a revised guide on the call next week or a higher probability for 4Q21 results to underwhelm. While we do expect that the company will benefit seasonally strong capital spending in 4Q21, we're less confident based on mixed user reviews. Despite the large TAM and long-term prospects for handheld ultrasound, we are moving BFLY down ahead of their earnings release next week.
Valuation
After reviewing the app download data for the most recent quarter, we have revised our expectations to be more in-line with consensus. We are currently modeling 2021 revenue of $69MM and 2022 revenue of $131MM versus consensus of $76MM and $125MM, respectively. The guidance for 2021 is $76M to $80M which is a big step up from our the YTD revenue inclusive of our 3Q21 estimate. Seasonally, a strong sequential growth rate into 4Q21 is possible, but based on what we're seeing in the data, not likely. We’ll monitor our app download data for an uptick in trends as we progress through the coming months as well as speak to clinicians and providers about adoption. With a near term risk to 2021 estimates, there is risk to shares dropping into the $7-$10 range.
Catalysts & Risks
Butterfly will report 3Q21 Earnings and host an Earnings Call on before the market opens Monday, November 15, 2021. In addition to app downloads, we'll monitor provider capital spending evidenced in the Healthcare Macro series we follow from the BEA and BLS. They could announce a large deal or partnership with a hospital system or medical school, but we don't have any visibility into a potential deal.
Key Slides
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Thomas Tobin
Managing Director
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