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Upcoming Black Book | ONEM | Post COVID-19 Winner, 30% Upside Invite and Presentation Materials to be Sent out to Subscribers Shortly |
Background
One Medical (ONEM) is a closely held and recent Health Services IPO. At its core it is a Primary Care physician practice, an industry with a checkered past (PhyCor). One Medical is a slick update that comes with an app, modern looking offices, telehealth, on time and thorough appointments when you need them. As the COVID-19 crisis emerged, the benefits of a blended in person and digital practice have became apparent.
The company makes money in three ways; directly billing for patient care, membership fees by employers or individuals, and partnership PMPM fees from health care systems looking to offload lousy margin business and secure high value referrals. COVID-19 has hit ONEM through the direct billing revenue line, which is trending at 55% of pre-COVID, partnership fees, where ONEM is likely to have to rebate PMPM fees to their partners where shelter in place has depressed patient volume, while membership fees have remained stable.The company currently serves 7000 enterprise across an expanding number of cities.
Thesis
As shelter in place restrictions are lifted and cities re-open, ONEM is likely to emerge as partner that can screen and test returning employees, provide telehealth services for anyone who might have symptoms, and generally manage what will be a difficult process in the urban areas where ONEM has practices. Their two biggest markets are San Francisco and New York City, both of which have a significant need across a host of enterprises. The per member fee of $200 per year is a nominal cost for many enterprises in these densely packed cities. As a service to the public, and as good marketing, ONEM has been posting regular COVID-19 updates and information here > https://www.onemedical.com/coronavirus/
We expect a significant opportunity to gain market share is emerging as a result of COVID-19. According to surveys, 10% of physicians are expecting to leave medicine or join a large group practice as a result of COVID-19. This number is likely lower as the recessionary impacts of reduced patient volume, pressures on in-person care, and integrating telemedicine create a jump ball for market share. ONEM claims to have 3% market share within their markets. If ONEM experiences a 10% decline inline with the reduction in the commercially insured patient population, but picks up 10% market share of the 10% of the market share available from attrition, they net 27% growth, or their 300bps share -30bps attrition + 100bps market share gain.
Valuation
ONEM raised $280M in their recent IPO. The stock has traded in a range of 6X to 10 EV to forward consensus revenue. As estimates trend toward our above consensus view, ONEM should maintain a Fundamental Equity Quad 1 or 2 as estimates accelerate into 2021/2022. We can push the model well ahead of consensus 2020 as well as 2021 revenue estimates of $300M and $416M, respectively. Revenue of $525M in 2021 appears to be a reasonable scenario where we think ONEM can hit $40, or 30% higher from here.
Catalysts
We've developed a number of tools to track the progress of our thesis.
App download data closely tracks their membership, this can be updated daily, weekly, or monthly, depending.
Patient volume can be derived using inputs from former employees and public data. Based on scheduling and utilization information we gathered in interviews with former physician employees we have the data needed to convert physicians census data into an indirect indicator of volume. This can be updated daily/weekly/monthly as needed.
To track the re-openings in key cities of NYC, SF, DC, etc., we will be watching mobility data, app utilization, COVID-19 case volume, and anything that indicates increased commercial activity or infection rates locally.
Market share gains can be indirectly tracked using public data on physician NPI billing reassignment. Based on our initial work, we will be able to monitor the status of Family and General Practitioners in their markets who are moving to larger group practices, or leaving medicine altogether, as surveys have suggested is likely for some physicians.
Risks
- Traditional brick and mortar practices may mange to transition to a blended in-person and telehealth model, effectively neutralizing One Medical's main selling point. Clearly COVID-19 has forced many to adapt and adopt, but execution is the key. We think many with struggle..
- NYC and SF may never truely reopen and recover from COVID-19. The risk of a long term Depression for urban areas seems high. Asymptomatic transmission of COVID-19 and an ineffective public health response would severely impact their practices, repeating the trends we're seeing in 2Q20. On the other hand, a mass migration out to suburban areas won't happen overnight, and as with prior crises, people adapt.
- Management has all the ticks of new age technology goofiness that includes a highly promotional 10-K (I didn't know that was possible) that includes multiple references to their desire to "delight" their customers. At the end of the day, ONEM might just be a doc in a box plus an app, not a deep moated innovater.
All data available upon request. Please reach out to with any inquiries.
