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Will This Be the Next Big Healthcare IPO?

By David Jagielski - Jan 18, 2020 at 11:17AM

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There's a lot of excitement surrounding One Medical.

Healthcare is big business and there could be a new hot stock for investors to buy this year. On Jan. 3, One Medical filed a prospectus for a planned IPO on the NASDAQ. No date is set as to when it may begin trading but with key customers like SpaceX and Alphabet's Google, which has also invested in the company, One Medical is no ordinary healthcare stock. 

The company is looking to change the primary care industry and give individuals more options for obtaining healthcare while also simplifying the process. One Medical could be a game-changer -- and that's why it may be one of the hottest IPOs of 2020.

What makes One Medical so special?

The primary care provider makes money primarily through memberships, so patients who pay an annual fee of $200 are able to access One Medical's doctors and services. One of the ways it differentiates itself from the typical doctor's office is that it utilizes technology to provide more flexible options for patients. With 24/7 video visits and same-day appointments, flexibility is a key theme for One Medical. Through an app, users can book appointments, renew prescriptions, and send messages that a real person answers.

One Medical sees an opportunity to fill a gap in the system, citing a 2016 report that found "81% of consumers are dissatisfied with their healthcare experience, in part due to limited after-hours and digital access, long wait times for appointments, extended in-office delays, short and impersonal visits, uninviting medical offices in inconvenient locations, constrained access to specialists and a lack of care coordination across clinical settings." 

Stethoscope and pen laying on a laptop.

Image source: Getty Images.

The company caters to young, tech-savvy consumers and has offices in major U.S. cities including New York, Chicago, and Los Angeles. And it's not just patients who like One Medical. The company has gained traction with employers as well, noting that, "A large part of the demand for our solutions and services among enterprise clients depends on the need of these employers to manage the costs of healthcare services that they pay on behalf of their employees."

But the business isn't without its risks

One of the largest dangers for One Medical is what happens in this year's federal election and what changes, if any, the government may make to healthcare and its costs. One Medical acknowledges that if employees of a company seek out their own insurance coverage, possibly because it becomes more affordable, that will likely have a negative impact on One Medical's revenue from its enterprise clients.  

For now, the company's growth has been exceptional. As of Sept. 30, 2019, 397,000 members subscribed to One Medical's services, up from just 94,000 at the end of 2014. The company also has approximately 6,000 enterprise clients, although it did not provide historical data in its S-1 filing. 

The other challenge for the company is that while it's been growing, its losses have been increasing as well. Sales for the nine months ending Sept. 30, 2019, totaled $198.9 million, up 29% from the prior-year period where it generated $154.6 million in revenue over the same timeframe. Unfortunately, its net loss worsened from $26.9 million to $34.2 million. 

Key takeaways for investors

Many healthcare companies are looking for ways to change their businesses as they're aware that the status quo just isn't good enough anymore.

CVS Health (CVS 2.33%) is a good example of that. The well-known pharmacy retailer has been closing its stores and finding ways to add value to its patients. That means finding ways to make healthcare more convenient and accessible, such as providing in-store care to patients to help them transition away from hospital care and toward looking after themselves. Providing dietitians and wellness rooms is another example of how CVS is modernizing many of its stores into HealthHUBs that shift the company's focus toward providing healthcare services as opposed to just being a conventional pharmacy retailer. It's a move that makes a lot of sense now that CVS has merged with health insurance provider Aetna.

The important takeaway is that healthcare is changing and investors need to be cognizant of that when investing in a stock. In the case of CVS, the company is trying to be more competitive in the face of online competition and is giving consumers more reasons to visit its stores. One Medical is taking even more drastic steps by offering its patients more tech-friendly options in an effort to stay one step ahead of the typical doctor's office.

Investors should buy stocks that are part of the change that's taking place in healthcare, as that's where the future and the growth opportunities will be. One Medical has the potential to help revolutionize and modernize healthcare, and that could make the stock an exciting long-term investment.

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