Investors (and people!) looking back on 2020 years from now will no doubt call it a year like no other in their lifetimes. The coronavirus pandemic has disrupted habits -- and perhaps helped form new ones -- around exercise, travel, work, and healthcare. Some of these new habits have been reversals of trends, while others have merely accelerated a future that was already in sight.
During this rapid shift to a "remote-everything" world, telehealth platform provider Amwell (AMWL -1.62%) decided there was no better time to go public. The company held its initial public offering (IPO) in September on the heels of second-quarter site visit growth of 300%. This increase, along with the ongoing demand for telehealth, has excited investors -- the stock has doubled already since its IPO. With so much enthusiasm over the stock, is Amwell still a buy for investors?
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Telehealth can mean a lot of different things
Amwell operates a telehealth platform that connects doctors and patients remotely -- a perfect remedy for the socially distanced world we find ourselves in. Similar to data plans on a cellphone bill, the company offers subscription prices based on estimated usage. As customers like health plans and hospital systems use the platform more, they pay for additional types of services, and subsequent subscription prices increase. Patients approve of this multitiered pricing; the Amwell platform has achieved high ratings across multiple widely used measures of customer satisfaction and loyalty.
Amwell allows customers to offer telehealth services under their own brand. This is especially important for enterprise customers, like insurance plans or hospital systems, who want to maintain their existing relationships with patients while using Amwell to supplement offerings where they are traditionally short-staffed (emergency department triage, behavioral health, and urgent care, for example). Amwell also has proprietary kiosks for "on-demand healthcare consultations" and serves needs as varied as 911 calls and sleep apnea monitoring.
The battle to be the platform
As care migrates away from traditional in-person settings, the competition to become the platform that enables this change is fierce. That's understandable; a recent study estimated the global telehealth market will grow at a 25% compounded annual rate through 2027 from its current $61 billion. Teladoc (TDOC -0.07%), the nation's largest telehealth provider, has used litigation to stunt Amwell's growth. In its most recent action, Teladoc sued Amwell for patent infringement over use of robotic telemedicine carts. This follows a 2015 action in which Teladoc was successful in getting the U.S. Patent and Trademark Office to invalidate Amwell patents it deemed "overly broad."
As with many software platforms, most customers will not change providers once they have chosen a vendor. For this reason, anticipate the battle to become the telehealth platform of the future to become ever more contentious. So far, Amwell is holding its own on several fronts.
Dialing up the numbers
The key metrics for any platform are the number of users and how fast that number is growing. With every new user, fixed costs are spread out further and further, until every added user is pure profit at virtually no additional cost. In the quarter ended June 30, Amwell reported 2.9 million visitors for the first six months of 2020. Although management did not report how fast that number grew, we do know that revenue grew 77% to $122 million. For comparison, Teladoc reported 4.8 million visits in the first half of 2020 -- 152% more than the same period in 2019 -- and 63% growth to $422 million in revenue. Using those numbers, it is reasonable to assume Amwell had similar user growth.
Amwell also touts 80 million lives covered by its platform, which supports 55 health plans and 150 health systems. These impressive numbers are comparable to those of Teladoc. And we can see this increased scale bringing better profitability in the financial statements: In the six months ended June 30, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins rose from -51% to -25%. Amwell is still not profitable, even on an adjusted basis, but management has that crucial metric headed in the right direction.
Amwell is also establishing an advantage by integrating into all-important electronic health records (EHR) systems. Management has rolled out apps that integrate into Epic's EHR system for both clinicians and patients. Notably, Amwell is the sole telehealth provider for Cerner (CERN), the second-leading EHR vendor (after Epic) for the hospital and ambulatory markets, where it has 26% and 25% market share, respectively. Integration allows for an efficient experience for both patients, who can access information about eligibility and billing, and providers, who can see medical images and document telehealth visits in the normal EHR workflow.
Wait-and-see mode
Amwell offers a platform for health systems to increase healthcare access for patients, and it could reduce costs and inefficiencies for the health system overall. Additionally, the growing adoption of telehealth has only accelerated with the COVID-19 pandemic. A recent report found that 20% of all medical visits in 2020 would be conducted virtually. The primary question is whether these new habits will persist. The answer remains unclear; that 20% number is down dramatically from the peak in April, but still up significantly from last year. This trend should give investors pause as life gets back to something resembling normal.
Beyond its growing industry and perfect product for the times, one of Amwell's most compelling features is its integration with legacy EHR systems. Notably, the company's exclusive relationship with Cerner and subsequent customer-experience scores bode well for new users to continue leveraging the platform and for clinicians to recommend it. People tend to gravitate to the simplest way to get something done. If doctors and patients can easily launch visits and access relevant information, adoption of telemedicine will continue to grow. In the world of telehealth, Amwell should have a position in investors' portfolios. However, with the expected number of virtual health visits for the year shrinking, it is probably safer to wait until it is clear how many patients have been converted to longer-term users of telehealth platforms.
