After an impressive improvement in vaccine distribution logistics, we recently surpassed 100MM doses of SARS-CoV-2 vaccine distributed and according to trend, are set to surpass the threshold of 100MM doses administered by mid – April 2021 based on the CDC’s latest update. Even more exciting, President Joe Biden recently announced that we will likely have enough vaccine doses for all adults by the end of May. As signaled by the market’s recent rotation away from the momentum- driven names within the “COVID Bucket,” we are beginning to recognize the need to re- position for “life after COVID.” The first change to our position monitor resulting from that analysis is moving American Well (AMWL) from the short bias to an active short.
BACKGROUND
When we first debuted our short bias on AMWL in our Pre- IPO Black Book on Thursday, September 17, 2020, COVID had shaken our way of life, forcing telehealth to be many Americans’ main point of access to their health care providers and the newly appointed number one priority of every health system or plan administrator. In our recent field work, we have heard time and time again that this is no longer the case. So much so that in a recent conversation, our contact even lamented that “despite the many benefits telehealth could yield, why would [providers] spend time on something that only 1% of [their] patients are going to use regularly.” While the market has begun to price this concept in reflected by the stock’s nearly 40% pullback in the last month, revenue estimates have not begun to recognize the potential ceiling for Amwell’s platform. We believe there remains to be material downside given the return to normal life which will likely view telehealth as nicety rather than necessity.
THESIS
Prior to the pandemic you may have never considered visiting your doctor through a screen, but at this point, you and/or many of your family members have likely participated in a telehealth visit. However, nearly a year after initial lockdowns, the offering which was once new and quintessential during the onset of the pandemic has become rather commonplace. Currently, all the top 25 health systems have found or established a telehealth solution, doctors are expressing the need to see and lay hands on their now, sicker patients, and going to a doctor’s office has been described as a social event. Given the current environment, we have become increasingly doubtful of Amwell’s ability to sign new systems and plans, further expand the number of modules per client, and continue to drive telehealth visits through their platform. For each of these drivers, we have developed a system of monitoring that we believe will show a material deterioration in the business model’s prospects.
VALUATION
At its peak, AMWL traded at 33.4x EV relative to NTM consensus revenue. A multiple that now seems incongruous for a platform that we have heard “lacks innovation” and “isn’t marketed well enough.” While the multiple has contracted significantly from that point, we believe there are a series of negative estimate revisions and further contraction to come. Based on the potential ceiling for the platform, we have modeled 2021 revenue to $260MM versus consensus of $270MM and 2022 revenue of $311M versus consensus of $345MM, yielding 10% - 40% downside from the current price, we suspect there is more downside to revenue than we have modeled.
CATALYSTS
- New Health System/Plan Clients | We have developed a tracker to follow net new adds to the platform over time. These insights will help track the growth of the user base and forecast subscription revenue and average contract rates going forward.
- Telehealth Utilization/Capabilities | Using our app download data, we have found a strong correlation between weekly active users and reported AMG paid visits. With this visibility, we will be able to better contextualize the telehealth data reported by the company and alternative source such as The Commonwealth Fund.
- 4Q 2020 Earnings & 2021 Guidance | When the company reports on March 24, 2021, we will be listening for commentary on module pricing, platform development, and their expectations of potential penetration or pipeline.
RISKS
- Further Penetration Within User Base | While there is a set number of systems and lives which can be targeted to utilize telehealth, the frequency of use going forward is much less clear. Contrary to what we have seen, there may be a subset of health systems/plans which generally prefer telehealth for lower acuity instances. In this case, we could see additional (and potentially rapid) adoption of other modules increasing both subscription revenue and volume.
- Return to Lockdown Due to Pandemic | Given the globalism of today’s world, far reaching pandemics are more likely to develop than they have in the past. Any return to lockdown or further quarantines due to additional strains of the virus, breakouts, or another pandemic would not only accelerate the volume of visits conducted through telehealth but would also re- emphasize its need and applications.
Total Adressable Market
Catalysts, Trackers, & Data
Valuation & Estimates
