OVERVIEW
We expect ONEM will have a good 2Q20 print. Our revenue estimate of $64.8M versus consensus of $61.1M and the guidance range of $56-66M, even while anticipating a substantial discount to their network partner PMPM. Based on downloads, quarter end membership appear likely to be tracking well ahead of guidance of 465-475K versus consensus of 474K. Current downloads point to membership of ~500K, but we suspect the faster download trend points to higher activation rates and claims per member. We are also seeing solid provider growth in our Provider Tracker.
Background
For many of us, the “new normal” of living in a world that can’t afford to be shut down any longer, but still does not have a COVID vaccine or therapeutic is anything but “normal.” The effects of COVID-19 have and will continue to structurally alter the way in which health care is consumed and physicians choose to practice. Under this landscape, recent health services IPO, One Medical, has become a household name. Operating at its core as a primary care physician practice, ONEM provides its patients with much more than a “Doc in a Box” experience.
With their own telehealth platform acting as a catalyst for adoption throughout COVID-19, ONEM continues their market penetration effort adding 30+ additional providers in June, including further expansion into newest market, Atlanta, GA.
Thesis
A criticism of our long thesis has been skepticism of available share in their existing markets and profit margins at the practice level. Due diligence calls with experts, we found that the company has “more than enough room to grow” before facing concerns of slowing adoption within existing employer markets, and solid expansion into new target markets. In addition, customer attrition remains low implying the post-COVID rebound is likely to recover toward pre-COVID patient levels on a same store basis.
Following Memorial Day, we have been monitoring a significant drop off in app downloads across telehealth platforms. In contrast, ONEM trend has remained strong and downloads continue to increase sequentially along with the phased re-openings across the country.
The next lever management will look to pull is to drive RVU’s through an expansion in specialty offerings to pre-existing and potential members. Our tracker corroborates the early stages of this process. Throughout June, there has been a significant emphasis placed on growing the virtual office, psychology, and pediatrics.
Valuation
ONEM raised $275M from their recent convertible senior secured note offering due in 2025. The multiple has expanded from 6-10x EV/NTM sales when we published our original note to 10-16x today. Given we expect upside to consensus and strong membership numbers to bolster revenue above estimates in 2Q20 and throughout 2021, we suspect the multiple 14X EV/Sales is reasonable. If they can show margin expansion as a result of higher capacity utilization, we believe the stock can reach $48-$55/share at 14X our 2021 revenue estimate of $515M, or 25%-43% upside from here.
Catalysts
- App Download Data ~ weekly
- Provider Tracker ~ bi-weekly
- COVID Updates and Mobility Data
- Claims Data for ONEM Providers ~ Prior to Earnings
- Earnings Projected for August 13
Risks
- Hefty Concessions Provided to Health Care Partners | In our model, we have factored in a 35% headwind on individual per member per month (PMPM) fees as the result of reduced traffic during the shuttering of elective surgeries in 2Q20. We are also assuming lower throughput on fee for service as well.
- #SecondWave Mutes Recovery | Impacts of the #SecondWave leading to further lockdown or prolonged fear among patients may persist as a headwind to Net Patient Service Revenue and add additional concession repayments in the near-term.
- Telehealth Availability & Crowding | ONEM’s telehealth and clear messaging has been a key catalyst in their pull forward in membership adoption throughout 2Q20. At the same rate, telehealth competitors such as Teladoc, Epic’s MyChart, AmWell’s InTouch, and many others have made their presence known in the space. Heightened focus from existing platforms may lead way to telehealth options with lower switching costs.
All data available upon request. Please reach out to with any inquiries.
