The first IPO Review

By Hoda Mehr Mon, Jan 27, 2020

Hey Scoopers,

Welcome to the first edition of the IPO Series at The Daily Scoop. Our goal with this series is to give you a fun and brief review of the facts and insights you would need to know about the companies that are going public in 2020.

We can’t wait to hear what you think about this first edition. Make sure to read it, and let us know how you liked it. While you’re at it, tell us which other IPOs you’d like us to discuss in future editions.

But first, here is a recap of what happened in the market on Friday.Market Recap

• U.S. markets: Friday turned out to be a stressful day as all three indices finished deeply in the red. Scroll to the “Overall Market” section to learn more.
• Cryptocurrency: On Friday, Bitcoin’s price recovered some of its Thursday’s losses and finished the week in the mid-$8,000. One analyst looked into Google search results volume for “buying bitcoin, and the volume resembles the previous periods when Bitcoin had reached higher prices. Is the higher volume a signal of another price spike? That’s what we will be watching.

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The coronavirus effect is in full force.

JTNDaW1nJTIwc3JjJTNEJTIyaHR0cCUzQSUyRiUyRnRyYWRlc3RvY2tzLmNvbSUyRndwLWNvbnRlbnQlMkZ1cGxvYWRzJTJGMjAyMCUyRjAxJTJGdGhlb2ZmaWNlLTEuZ2lmJTIyJTNFFriday turned out to be a difficult day for investors. If there was any gain during the week, all of it evaporated on Friday and then some. By the end of the day, all three indices finished both Friday and the week in the red.

The decline is attributed to the widespread impact of coronavirus. Several companies in the regions with a high risk of public safety have shut down their operations. Disneyland (Ticker: DIS), McDonald’s (Ticker: MCK), and Starbucks (Ticker: SBUX) are only a few of the more prominent names that will be impacted by the public health concerns.

Today’s IPO

OneMedical (To-be ticker: ONEM) is a start-up company from Silicon Valley, California, with a mission to “transform healthcare for all into a human-centered, technology-powered model.” That mission translates into an annual subscription to OneMedical’s primary care clinics. You walk in one of those clinics, and you think to yourself, is this a medical clinic, or have I mistakenly walked in a social club built exclusively for the beautiful people who are just happy to be my doctors and nurses?

Why One Medical?

First, and foremost, approximately ten Scoopers sent us an email (members@tradestocks.com) and asked for it. We really don’t need any other reason except that the Scoopers wanted it. However, there is one more reason to pick this one first. Healthcare and the intersection of healthcare and technology is one of the sectors that will be shaping the future, and it’s important for us as investors to keep our fingers on the pulse of this sector.

For the love you Scoopers and our own pockets, let’s get to it.

For this review, we are using the latest IPO documentation (S-1/A) that was published by the company a few days ago.

The company filed for its IPO in early January 2020, and it plans to go public with a market capitalization of up to $2 billion later in the year.

The Good

• The company has a good mission. Transforming primary care to be more delightful and using technology to reduce cost is a good mission that anyone admires.
• Large market opportunity. The company is only present in 12 cities in the U.S. And, in those cities, it has only captured up to 3% of the commercially insured population. Expanding in new cities is a very plausible way to grow.
• Customers love the service. Based on the IPO document, the company has 397,000 members in nine markets in the United States, who have kept renewing their subscription. Moreover, One Medical partners with 6,000 enterprise clients and health network providers who also have kept on renewing their relationship with the company.
• It has a growing gross margin. The company has managed to enhance its gross margin (revenue minus the direct cost of delivering its services), from 30% in 2017 to 40% in the first nine months of 2019.

The Bad

• The company is not profitable. As is the case with almost all recent IPOs, One Medical is not profitable. And, the net losses from operations are growing as fast as its revenue.
• The company is dependent on one customer. One Medical focuses on working-age customers in busy urban centers. Google employees are the embodiment of whom One Medical targets. As such, One Medical operates a few clinics on Google’s campuses. As such, the company relies on Google for 10% of its revenue.

The Ugly

• Loss is growing faster than revenue. Because the net loss from operations is growing almost as fast as revenues, it’s unlikely to see that the company can scale its operations faster than its costs. And, that’s where things fall apart. Ugh!
• This is not a subscription-based business. While One Medical talks about its subscription-based revenue, the majority of the company’s revenue is coming from Patient Services that are one-time visits to the clinics. The stock market tends to love subscription-based business models. However, One Medical is a healthcare provider hiding behind a small subscription-based portion of its revenue.

Final Takeaway

While the company has a remarkable mission to make primary care more delightful and less costly, One Medical hasn’t yet found profitable operations. It would be okay to be unprofitable if this were a scalable technology company and the revenue could have grown faster than costs. Unfortunately, One Medical’s growth is dependent on physical locations and has a fixed ratio of cost per patient, and those costs will grow proportionally to the company’s revenue. It is also not a subscription-based business we had hoped it to be.

Valuation

Everything we have discussed so far sets the stage for the company’s valuation. One Medical plan to go public at the market capitalization of at least $1.5 billion. That means it is at least demanding a price to sales ratio of 5.6 times. That’s significantly higher than some of the most profitable companies in the industry such as the Unitedhealth group (Ticker: UNH). But, it is priced much lower than healthcare innovators such as Teladoc (Ticker: TDOC). But, One Medical is no Teladoc, and assuming that no new information becomes available between now and the company’s IPO date, this ain’t the shinny IPO we had hoped. There you have it. The first edition of the IPO series is over. How did you like it?

The next IPO review on our list is a deep dive into Casper Mattress. If we get 10 Scoopers to ask for a detailed analysis and review of Casper Mattress IPO documentation, we will dedicate one full Scoop to it just like today’s edition. The power is in your hands now …

Our email address is members@tradestocks.com. Or, reply to this email.

About the Author

The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card