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Butterfly Network: What Investors Need to Know

By Brian Feroldi - Dec 21, 2020 at 8:13PM

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Butterfly is aiming to meet ultrasound imaging needs.

In this episode of Industry Focus: Wildcard, Emily Flippen and Motley Fool contributor Brian Feroldi do a deep dive into Butterfly and talk about how the company is revolutionizing the medical imaging space. Butterfly is the latest addition to companies going public via a SPAC. They get into the range and scope of the technology and its future applications and also some things to keep an eye on. They also discuss the company's financials, competitive advantages, and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on December 9, 2020.

Emily Flippen: Welcome to Industry Focus. Today is Wednesday, Dec. 9th, and I'm your host for this Wildcard episode, Emily Flippen. Today, we are joined by Fool.com's most meticulous man of mud-breaking make-believe medical malarkey, Brian Feroldi. [laughs] Who takes no pity on me having to read that for the first time just now.

Brian Feroldi: [laughs] I feel like I really came close to messing you up there, because you were laughing toward the end. I'm guessing it was "malarkey" that pushed you over the edge, Emily? [laughs]

Flippen: [laughs] It was "malarkey" that pushed me over the edge; a little bit of an inside joke there for frequent listeners of Industry Focus. But Mr. Feroldi, who I will not try to repeat that wonderful title, is joining to discuss a company that is going public via a SPAC, Butterfly Network.

Brian, thanks for joining.

Feroldi: Emily, I'm always happy to be back talking with you. This is a company that is extremely interesting, very exciting. To tease, if you are a fan of Nano-X, this has that kind of writing to it, except for less risky, still very risky, but less risky. And I've never invested in or looked at a SPAC before. This one, I think, is worth the deep dive, because I think this company could become something special.

Flippen: And before we get into the clarification of how going public via a Special-Purpose Acquisition Corporation, a SPAC, is different than going public via a traditional IPO --

First, I want to make a formal apology to our listeners, to you, Brian, and everybody out there in Fooldom, when you came to me, it must have been at least a few weeks ago, with this idea for a show. In my mind I thought, that's interesting, I'll tell you what, I'll schedule it for Dec. 9th, my next Wildcard Wednesday, nobody will mind. [laughs] But the number of people who have reached out to you on Twitter and other forums, between when you asked me to do this episode and when we're actually taping today, is truly outstanding. I mean, this is a company that people have clearly been interested in, want to hear about long ago, that I've kicked the can down the road on. So, for that, I apologize.

Feroldi: The good news is, we haven't missed anything yet, because the acquisition hasn't taken place. That won't happen until 2021, so no harm, no foul as of yet.

Flippen: [laughs] Patience is a virtue, right?

Feroldi: That's right.

Flippen: So, let's talk a little bit about, before we get into the fundamentals of Butterfly Network and Longview Acquisition Corp., about how SPACs operate. It's a little bit of a black box for many investors. To your point, this is new to you, it's new to me, it's new to most investors, because SPACs, for the most part, weren't an interesting way to get exposure to interesting companies until really recently. They had a history of being a little bit malarkey, I'll say that, to being a little bit full of malarkey. And recently, we've been finding that this way of listing has become increasingly accessible to individual investors and attractive to companies that these special purpose entities are looking to acquire.

So, the way this operates, at a very, very high level, is that investors give money to what is in this case Longview Acquisition Corp., it's a company that is founded as a blank check company for the sole purpose of going out and finding an interesting company to bring to the public markets. So, people who invested in Longview before the announcement that they were going to be having a business combination with Butterfly did so with the intent of trusting management of that special company to find an interesting company to bring public. And now, we have the news that they'll be, obviously, going into an acquisition or a business combination with Butterfly Network, meaning the value of Longview Acquisition company shares, skipping a lot of steps here, is approximately equal to 20% of [laughs] the expected value of Butterfly Network's once it goes public.

So, if you're buying [a] share of Longview Acquisition Corp. with the intent of wanting to own a share of Butterfly Network, understand that the market cap of Longview represents around 20% of what investors expect right now the market cap of Butterfly Network to be, which, if I'm looking at the numbers as they exist in this moment, is somewhere around $3.6 billion. So, small in comparison to many of the companies on public markets today, but as we talk about, when we get into the fundamentals, very, very large [laughs] for what this company is bringing in in terms of revenue.

Feroldi: Yeah, it's going to be coming public at an extremely rich valuation. And as we go into the details about the company, I think people will understand why it's garnering that kind of information, but great overview there. We've seen a number of companies come public via SPACs in 2020, because there's several benefits to doing so. It speeds up the process, it gives the acquiree, like, a guaranteed price, and it, kind of, bypasses the need to go on a roadshow and fill out an S-1. So there's a lot of benefits for the company to come public via a SPAC, as investors were often given a lot less information than what we are normally used to. So, that does increase the risk level a little bit more. So, I look forward to learning more and watching this company come public just for my own education.

Flippen: Definitely. And I want to talk about the company's fundamentals now. I'll circle back, I'll plan to circle back around toward the end of the episode to discuss some more about some of the current shareholders, what the structure could look like post, what is it, de-SPACing, I think is actually maybe the word that's used. What the structure will look like for people who do choose to buy shares of Longview Acquisition or otherwise keep that on their watchlist today. We'll circle back around toward the end of the show, because right now I really want to get into Butterfly Network.

Butterfly Network, you mentioned it, it's a med-tech company, it doesn't sound like it, right. [laughs] Butterfly Network sounds like it could be any number of things other than what they're actually doing, but this is a really innovative company that is changing the way ultrasounds are sold and conducted on both a level that is serving clinics and hospitals, as well as individuals, so a really interesting company.

Although I have to admit, Brian, when I looked through their investor presentation, there were a lot of buzzwords, so I'm curious on your take, if you think this company is all talk or if there's truly some walk to be walked here?

Feroldi: Yeah. So, if you were going to say, what's the five-second pitch on Butterfly Network, it would be: Nano-X is to X-ray what Butterfly is to ultrasound. That's a pretty easy way to understand what's happening here. Butterfly has developed a chip technology that allows it to miniaturize ultrasounds. And they have created and launched, and gotten regulatory approval. That's a key differentiator here -- this product is actually on the market. This is a handheld device that can produce and read ultrasounds. Ultrasounds, for people that are at all familiar with medical imaging, have a ton of medical uses, the most common one that people interact with in their life is through a pregnancy, where you can check how the baby is doing by putting the ultrasound with the gel up to the person's belly. But there's a huge range of uses for ultrasound beyond that. And they can be used on basically the head to the toe parts of the body; there's so many use cases for this.

Currently, about two-thirds of humanity does not have access to ultrasound technology; two-thirds. The reason there is cost. Ultrasounds are expensive for a number of reasons. Yet, they're incredibly useful technology for diagnosing diseases. The number that Butterfly throws out there is that two-thirds of diagnos[is] dilemmas can be addressed by using simple medical imaging technology. So, they have created this handheld ultrasound that plugs directly into a smartphone. It works with iOS as well as Android, and it turns any smartphone with this device into an ultrasound machine. That's incredibly exciting.

Flippen: And to reiterate the use cases here, I have to admit when I heard they were reinventing ultrasounds, the only thing that I could think of, and granted I'm a, I'm a 26-year-old female, so I haven't had a ton of experience with the use cases of ultrasound, especially as people age or pregnancies. And I thought to myself, it can't be that large of a market. But to just show you, and our listeners, how broad the clinical applications are for ultrasounds, things as far as thyroids to cardiac disease are actually things out that ultrasound can help diagnose. So, think about strokes in the average patient, caused by blockages in the artery that ultrasound can actually be used to detect. And when you think about how this could impact the accessibility -- you mentioned two-thirds of the population of the world doesn't have access to ultrasounds right now, but also just on an individual level for people who are at higher risk, improving the accessibility of access and affordability of ultrasounds, it could help prevent a lot of the leading causes of death that we're seeing across the world, which comes down to cardiac diseases.

I mentioned the company to my boyfriend, who immediately said it's a hypochondriac's nightmare. [laughs] And I would agree with that assessment. But that really does get to the heart of what Butterfly is trying to do, which is increased accessibility of these portable ultrasound machines that could at some point be used even on a consumer level, since it plugs into devices such as iPhones and Samsung phones.

Feroldi: And you're just mentioning all the current uses for ultrasound. As you mentioned, yes, cardiovascular disease, joint issues, fractures, broken bones, orthopedics, kidney stones, there are so many uses for this technology currently. And currently, to get an ultrasound you have to go to a medical facility. The promise, and what's so exciting about this technology, is that it's completely portable. I could easily see, if this technology takes off, why couldn't it be in every doctor's office? You're in the doctor's office and [you] say, this hurts, doc, and they say, all right, let's take an ultrasound right now and see if we can find anything. How about in an ambulance, you're on your way to the ambulance, why couldn't you do an ultrasound on your way to the hospital? Or how about in the vet clinics, people have to get pet care all the time. Wouldn't it be very useful to have an extremely low-cost ultrasound for diagnosing pet issues, which is a market they're going after by the way? So, that is what's so exciting about technology like this, is the use cases can grow substantially if you can make this affordable and accessible to many people.

Flippen: And when we we're talking about this company, we're talk[ing] about ultrasounds, people may have a hard time visualizing what an ultrasound is, beyond what they imagine when they see in, maybe their personal experiences, if they've ever been pregnant or had a kid or what they see on TV. I would encourage anybody who's unfamiliar to google search "Butterfly Network." You can go to their website where you can actually see the Butterfly ultrasound machines, they're on sale right now, you can visualize what they look like.

And most interesting is that this is actually a product, that you mentioned, has approval, is being sold actively right now. And many people may be surprised at the price of this product. I know the average ultrasound machine can range between, I think, $9,000 to $24,000, which is prohibitive to the average person, is even upwards [of] pricey for smaller clinics or smaller hospitals. Brian, how much does the Butterfly machine cost?

Feroldi: Well, they have a number of different price points here. And unlike Nano-X, which is attempting to give its devices away and charge per scan, the business model here is predicated on hardware sales. So, that is something to note about this company. However, if you did want to buy the device, as well as unlimited scanning and access to their cloud-based tools that let you upload images, capture them, and potentially work with AI to diagnose diseases, you can get that currently for a one-time payment of $3,000. Now, that is the one-time payment upfront, and that is a thing that they're trying to push a lot of people toward right now.

However, you can also get billed monthly for this and almost lease it, and that can go as low as $68 a month. And they have different price points along the way, depending on usage and if you want to use their cloud services and stuff. So, that is something to note here, is that there's a hardware component to the business model, as well as a software and leasing component to the business model. The latter are far more interesting to me. If I was in charge of this company, I would say, let's give the device [laughs] away for free and just charge using a Software-as-a-Service business model.

Flippen: Yeah, I completely agree with that. And what's worth noting -- you included a screenshot of Butterfly's website here in our outline -- is that they are admittedly saying that the one-time no recurring fee is a limited time offer. Now, we all know companies can play around with limited time offers, but I do think that long-term, if the Butterfly machine takes off, you'd want as much revenue as possible to come from recurring subscription revenue as opposed to one-time fees, simply because the upward market for the number of products that can be sold, especially to clinics, is capped. Now, it's capped at a very high level, of course, [laughs] but it is capped nonetheless.

Which brings me to the question I have for you, something that management talked about, that I almost want to call a yellow flag, and maybe that's overstating it. They talked about potentially targeting the consumer market. So, somebody like you or I, maybe one day buying our own Butterfly machine if the price point came down to what is reasonable for an individual to achieve. And having our own ultrasound [laughs] machines and everybody's house, do you see that as a viable market opportunity?

Feroldi: In the long term, absolutely I do, because I'm a big believer in the potential of telemedicine and the ability to work with your doctor right over the internet. If that's the case, there is definitely going to be a growing market for at-home medical technology. What are the things that matter there? Can the training be done and can the devices be so easy to use and connected to the internet that the healthcare provider on the other end of your video chat can actually see the data and make decisions with it? Is there a long-term potential for that? Absolutely, in my opinion.

Flippen: A way to highlight that opportunity is, I'm going to mention a company, Teladoc Health, which I know you're familiar with, many investors may be familiar with this. Teladoc Health came out with the earnings report last quarter. Management mentioned that they believed that the pandemic alone had accelerated the transition to telemedicine by a factor of four to five years over a period of just a few months.

The transition to telemedicine has long been coming, but teaching people and clinicians about the broad applicable uses and treatment options that are available virtually has been really challenging. So, the pandemic, the same way it's accelerated the move toward telemedicine and supported companies like Teladoc, it's also helped companies like Butterfly, in the sense that if people have access to remote devices, ultrasounds being one of them, it means that people can either, from the comfort of their own home, especially for people who have recurring diseases, where making this size of investment would make sense -- or, as well, small practices can use these machines and actually share screens on their phones, share screens on their devices to an expert who is remote, who can look at the screens happening on the ultrasound machine and provide diagnosis and provide treatment options.

So, the broad uses here are much bigger than just thinking about replacing bulky, more expensive ultrasound machines with a portable device.

Feroldi: Totally. And one of the things that is part of this company's long-term roadmap is actually almost like a sticker device that is worn directly on the skin in case there's a need for multiple ultrasounds. I could tell you that it's fairly common if you have a troubled pregnancy to need to go in multiple times per week for ultrasounds to check on the health of the baby. Wouldn't that be amazing, if you can instead just slap a device on, go home, and whenever the doctor wants to see, they just click a button and they get a real-time image of what's happening with the baby. That sounds fantastic.

Flippen: And that's exactly where my mind went to. And I don't want to focus so much on OBGYN opportunities, because if you actually go to the investor presentation, you'll see that they believe the opportunities for ultrasounds are much bigger, and OBGYN opportunities, pregnancies, are a very small part of that market. But that's exactly where my mind went to as well. Babies who are breeched, for instance, who they're trying to get to flip, having the opportunity to see if your baby is breech pre-pregnancy can prevent potentially scary and harmful effects, especially if you're having something like a home birth.

And my mind also went to, [laughs] like, pregnancy parties. Think about baby showers, where people come over and you have your own ultrasound device and everybody can see the baby right there on your phone. I don't know if that's a feasible market [laughs] right now, but I can see people, especially people who are having their first child, being really excited about having that opportunity. The amount of money people spend on babies and weddings, it makes sense that this is a market that they would want to target over the long term.

Feroldi: And when new technologies like this come along and they bring down the cost of something substantially to make it more affordable, innovation and use cases always expand, or at least they have historically. To your point, what are the potential use cases of this technology if it indeed becomes available everywhere? I can't imagine them all, but I can see brand-new medical opportunities opening up because of this.

Flippen: And we've selfishly focused very much on our own, you know, kind of American mindset here about the broad uses of ultrasound equipment. But it's worth noting, is that management and Butterfly have always targeted that first mention that you made, that two-thirds of the world population doesn't have access to ultrasound machines right now, which is really necessary in a lot of developing parts of the world. So, having the opportunity to target those areas first, the areas that need them the most, is obviously a big opportunity for this company.

But we've spent 20 minutes now [laughs] or so talking about all the great things, all the great potential use cases for Butterfly's ultrasound machines without really talking about the elephant in the room, which is, as we alluded to at the beginning, this company really isn't much of a business right now.

Feroldi: It's still in the early innings of its growth phase; I mean, there's no doubt about that. However, there is actually a revenue number here to go off of. So, the first version of their product was launched and made available to the market in 2018. Obviously, that was not that long ago, when you're launching a medical device. The company estimates that its revenue in 2020 will be about $44 million. Now, we don't have a ton of details beyond that. Again, that's one of the downsides to investing in a SPAC, but they're projecting that this year they'll grow $44 million in sales. And they just listed their gross margin as not meaningful. Does that mean negative, does that mean positive? Well, we don't know.

However, because it's a SPAC, they're actually allowed to give future projections of themselves, which is not something that you can do through the traditional IPO process. This company is on record saying that they believe, between now and 2024, that their revenue is going to grow at a 65% compound annual growth rate, and they project that by 2024, they'll have about $334 million in revenue. Long-term, they are also targeting a gross margin in the 70-ish range. If either of those numbers are remotely accurate, that is a really exciting thesis.

Flippen: I completely agree. And while the risks here are outsized, you mentioned their revenue is only about $44 million so far in 2020; estimated, that's the estimated 2020 number. So, a very, very small company. This is also the type of business that, I think, if investors are interested in, you can kind of feel good about owning it. A company that is really trying to do good things for the world. You mentioned in our outline that you see moats in this company in the form of potential patents or network effects. I personally see it in management, I see it in the opportunity for the vision that the company has, being really ahead of its time in improving ultrasound technology -- both of which, I think, kind of harken to the long-term prospects here, with the obvious acknowledgement of the extreme short-term risks.

Feroldi: Yes, completely. The company does go out of its way to point out that it has over 700 patents on its technology. Patents can protect you somewhat, they're not like the ultimate competitive advantage. But longer-term, I could see some weak network effects being established with this company, where if their technology is available everywhere, and people are uploading to their proprietary cloud system, and they have called out that they are very willing to work with companies that can view medical imaging and make diagnostic decisions with them by using AI -- if they got that network up and established and all of your data information is in there, I could see that developing into a moat over time. But for right now, they seem to be the only ones that are doing what they're doing, and when you combine their brand name with their patents, I would say that their moat is emerging. But there's no doubt this isn't a wide moat company yet.

Flippen: Yet. And one of the things that we haven't mentioned is that their patents, which also cover -- you mentioned the fact that they have a chip-based ultrasound. It's a semiconductor chip, patents also kind of cover that, which allows the product to be portable and affordable. But also, when you look at the company, you have to think about the AI and the big data. And again, I mentioned at the beginning that there were buzzwords here, and these are clearly big buzzwords. But one of the things the company is working on is when the ultrasound scans are shown on whatever device you're using, let's say, your phone, they can actually use AI to kind of identify what you're looking at, what potential issues could be. It's still very early stage, but that could almost cut out the middleman entirely, of having to call in a separate doctor with expertise to make up a preliminary assumption about what the ultrasound is claiming. Whereas, the AI or the data that they can collect, as numbers of scans increase, can provide that preliminary assumptions, that preliminary notice.

Maybe if you are a consumer and you have it at your home, you're part of the aging population that is at heightened risk for, say, chronic diseases that would require ultrasounds to detect. You could scan yourself on a weekly or monthly basis and the AI could potentially say, hey, you know, this isn't looking great, maybe your arteries are getting blocked in a way that they weren't just a few months ago, which could then tip you off that, hey, I should probably go in to the doctor, I should probably get someone to take a second look at this. I think there could be, again, very long-term, this is not -- they're not quite there yet, but I could see some sort of moat developing, and just the data and the technology and the artificial intelligence they could build around scans, as the number of use cases increase.

Feroldi: Yes, completely agree. And I am really encouraged by what we've seen so far. Again, two years ago, zero revenue; now, $44 million. That is a very clear sign that this company has some sort of product to market fit. And they're projecting, again, 65% revenue growth over the next couple of years. Whether or not that proves to be malarkey or not, we don't know, but I could see, if they were to achieve that, it wouldn't be shocking to me that they could hit that kind of growth.

Flippen: And I see a question, as we're taping here on Motley Fool Live from a member, that I think is worthwhile addressing, not in the Q&A session, but right now on this podcast, and that's: How much training is needed for people to actually use this device?

The device itself, it's handheld, it plugs into your phone. Fundamentally anybody can use it from a theoretical perspective. But one of the things Butterfly does break out in their investor presentation is the need for point-of-care education. So, if you look at the training requirements, depending on what you're trying to diagnose with an ultrasound machine, it can range anywhere from three hours of training to upwards of 20 practice exams. So, the training does depend on what you're trying to diagnose, what you're trying to treat with the ultrasound machine.

But I don't think that's really prohibitive. We mentioned before that these can be used as preliminary assessments, even used to remotely connect with a doctor who may have that training. So, I don't think individuals or even clinics themselves will need complete expertise over ultrasound training to make Butterfly a necessary purchase for them.

Feroldi: Yes, there's always a training component to any sort of medical technology. And again, to buy the system now, you have to be a licensed medical practitioner. It's not like you and I can go out here and just say, hey, I want to buy that for my house. Because to your point, when it comes to medical technology, there's always the risk that humans are going to misuse them, that they're not going to use them the way that they're designed to be used. So, you do have to have some sort of training in place to have that done.

With the consumer versions, again, we don't have a ton of information about that yet, but I could see it being installed or at least made to be so easy that it could be installed at home. Or at least you go to a clinic one time to have the device attached to, say, your belly, and then you go home. So, training is a massive component with any sort of medical technology, to say nothing of interpreting the results, like, we're just talking about actually getting the results, actually seeing the images and making decisions with them. There's huge training that needs to go on with that as well. So, these are all questions that the company is going to have to figure out and answer.

Flippen: And before we move on to the risks, we obviously have been very bullish here up to this point, largely because most of the information we have about the company is issued by the company, so naturally it has a nice, wonderful positive spin to it. I want to talk about the addressable markets.

Butterfly identifies what they believe to be an $8 billion addressable market that they're seeking to disrupt, $6 billion of that made up of equipment sales, $2 billion of that made up of services. But the skepticism comes in their own projections that less than 3% of this market is handheld right now. Now, this could be a big opportunity for Butterfly, because it could mean that, if the market is not handheld, Butterfly is clearly the best option, so the market is going to rapidly adjust to handheld ultrasound machines, or it could harken to the potential issues of diminished product, right. When you're moving something from a big machine that's expensive, that probably has a lot of features, to something very simple and handheld on a smaller screen, maybe clinics won't want to make the change.

So, when you think about the addressable market, do you think this is disruptable, or do you think this is going to be a niche player?

Feroldi: So, again, I think it's important to back up and remember what this company is trying to do. They're trying to bring ultrasound technology to the two-thirds of the world that does not currently have it. The third of the world that does have this, they see that as an $8 billion market opportunity, and there's substantial room for handheld devices to take share in that. But what is the potential addressable market opportunity of this company if they can indeed achieve their mission and go after the two-thirds of the world? That's not captured in that $8 billion market.

But even if that $8 billion number was just their market opportunity, there's a whole lot of room for growth between $8 billion and $44 million that they have today.

Flippen: Completely agree. And let's talk about the risks now. The risks here are obviously great. There's the risk of not just the lack of information investors have with the company that chooses to go public via a special-purpose acquisition corporation, but also the risks associated with technology, disruption, competition. What do you see as key?

Feroldi: Yes, I mean, there are risks galore to this company, there's no doubt. The ultrasound market is not new. There are numerous companies that are competing in this space, including some big companies like Philips, such as General Electric -- how are they going to react to this technology? And can Butterfly separate itself from the competition that exists? That's risk one.

How about No. 2: The valuation that this company is going to come public at is going to be, shall we say, high, very, very, very high. So, the projections, the estimates from investors today is that this company is going to grow substantially over the next couple of years. If it only grows fast and not substantially over the next couple years, investors could be really hurt right out of the gate if they're buying too high. We also don't have a ton of information to really prove that product market fit has been established. Yes, going from $0 to $44 million, boy! is that impressive in a short period of time. Is it possible that they've already picked, kind of, the low-hanging fruit? There are risks galore to this company. However, I still think it's been de-risked a lot, because they are on the market, they are producing something, and they already have revenue coming in.

So, I think it's worth, from what we've seen thus far, to show that this company has developed something that's exciting and it could be worth betting on.

Flippen: I'm impressed by the fact that I could go online right now and order one of these to have shipped to my house for less than $2,000 and it will get here, I believe the website said, by Dec. 14; and we're taping this on Dec. 9th. That, to me, implies a level of sophistication, inventory, chain management that I wouldn't expect from a company with [laughs] only $44 million in revenue. So, that makes me kind of bullish about management, about the long-term prospects.

But I think personally, I have a level of skepticism with any med-tech company, because it's hard to understand when a company is so disruptive, how that future shapes up. I always want to relate it back to Fitbit, acknowledging that Fitbit is a consumer good versus something that's being sold to hospitals or clinics. But the expectation that Fitbit and fitness wearables were going to help diagnose, treat, and serve an entire medical market that didn't exist, and that value just really never came to fruition. I think I have a little bit of skepticism about whether Butterfly is playing into a lot of the hype, when in reality the existing inventory, while they may be good for serving an underserved market, the vast majority of consumers are not going to be interested in buying an ultrasound machine on their own accord. And clinics that already have installed bases of ultrasound machines may not be interested in upgrading or exchanging to a portable device. So, I think that skepticism is what's holding me back here.

Feroldi: And that skepticism is perfectly warranted. There's also absolutely nothing wrong with looking at this company and waiting a year and letting it become a publicly traded company and see how it reacts to being in the public markets. It has put forward some very aggressive assumptions. Is it meeting those, is it actually going to achieve that 65% growth rate that it's out there promising, can its margins pick up? Like, saying you're going to do something and actually executing on that thing are two completely different skillsets.

The question that I always come back to is: What are the odds that this company is going to succeed? The answer right now is, I don't know, I really don't. But we do see it went from $0 to $44 million in revenue, estimated for this year, I guess we should reiterate, estimated, fairly quickly. The market here is also massive. So, you could also make the argument that there's room for this company and its competitors to grow, especially if the number of use cases for this technology expands over time.

And what happens if we're right? What happens if they can do what they say they're going to do? Could this be a multi-bagger over time? I can absolutely see the answer being "Yes." If we're wrong, what's the worst that can happen? Well, you lose 99% of your money, that's the joy of investing in potential 10-baggers like this is, if you're right, you can make +10X your money; if you're wrong, you can only lose 100%. So, the math is in your favor. [laughs]

Flippen: Before I finish up here with an overview and a reiteration of how the SPAC process works for potential investors, I'm curious, Brian: Are you interested in buying shares? And if not, what would make you interested?

Feroldi: I am absolutely interested in buying shares, if for no other reason [laughs] than getting myself accustomed to learning what happens with the SPAC process. We also didn't point this out yet, but this company has some pretty heavy-hitter backers behind it that I certainly respect. That includes the Bill & Melinda Gates Foundation, as well as Baillie Gifford, and once the SPAC takes place, none of the existing shareholders are going to be selling. None. This is not a liquidity event at all for existing shareholders; this is a way for the company to come public. I like that.

So, could this company be worth betting on? Even though that's going to come public at a very high valuation and that there is competition, I could see myself taking a small position in it, though I'm not 100% convinced that I will yet. But is this past the Emily Flippen radar? That's what I want to know.

Flippen: [laughs] Emily Flippen radar is a very strict radar that is oftentimes a year or two too late to the party. But the good thing about being an investor in companies like this is that you don't necessarily have to be in on day one. Good companies continue to grow much longer and higher than people expect. You know, I think my cost basis on Shopify, for instance, is in the $300s, which, at the time, having accelerated from $30, made people feel like they had missed the boat. And obviously, Shopify has now soared above $1,000 a share since then. So, I tend to take that mentality when looking at companies.

Am I interested in Butterfly? Yes. I'm not sure if there's anything you could say, Brian, or that the company could say to me right now, that would make me want to buy shares of this special-purpose entity or even buy shares of the company once it is officially public, until I see more use cases start to play out. But the moment I get on Instagram and somebody is having a party with an ultrasound machine [laughs] and all their friends are over looking at their baby, that is probably what it would take for me to be a buyer.

Feroldi: Awesome! Well, I'll take it. So, if it's a radar stock for you right now, there's nothing wrong with that. And any of these companies that we highlight that are coming public and they haven't even crossed into positive gross margin yet, holy cow! are they risky. So, if you want to wait for them to be de-risked over time and prove to you and you're willing to wait, I see absolutely nothing wrong with that strategy.

Flippen: Completely fair. And before we wrap up here, I'll reiterate what I did at the beginning of the episode, which is: Butterfly is not public on its own yet. It is going to be taken public. They have a business culmination agreement with a company with the ticker LVGW [LGVW] (sic) -- it's a special-purpose acquisition corporation. Current shareholders of LGVW will retain 20% of the final value of Butterfly once it goes public. So, your shares in LGVW, if you choose to buy, will be transitioned to shares of Butterfly, the value of which will [laughs] entirely depend upon the perceived value of Butterfly Network once it goes to public markets. So, keep that in mind when you buy shares.

The market cap of the special-purpose acquisition company, Longview in this case, is not the market cap of Butterfly -- it's approximately 20% of such. And as you mentioned, Brian, there's going to be rollover equity from existing shareholders. That's Baillie Gifford, Bill & Melinda Gates Foundation, Fosun Industrial as the three largest investors, who will be retaining shares, around 63.5% of the company, of Butterfly Network, once it goes public. So, the devaluation risk here is extreme as it is with any SPAC. I think it is de-risked by, obviously, their management team and the investors that have already invested in the company. But at a current valuation of just under $4 billion on an expected revenue of $44 million, to say that the expectations for Butterfly are high would not be an understatement by any means. So, keep that in mind if you're buying.

I am not -- I'm sorry to say -- I'm not buying. I'll keep it on my radar, I'll keep my eye peeled on it, but it is an interesting company. And I appreciate you coming and shedding so much light on Butterfly Network over the past 30 or so minutes, Brian.

Feroldi: I love nothing more than finding companies like this that are extremely exciting, and if they work out, could produce tremendous return for investors. But to your point, holy cow! is this thing risky right now, but, hey, still fun to talk about.

Flippen: It's a blast to talk about it. I can't wait for more companies to go public like this, because they make great Industry Focus episodes, at a minimum. And I will be smart next time and schedule them immediately when you ask, instead of pushing it off by a month. [laughs]

Feroldi: Sounds good to me.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions, you can always shoot us an email at IndustryFocus@Fool.com or reach out to us at Twitter on @MFIndustryFocus.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for his work behind the screen today. For Brian Feroldi, I'm Emily Flippen. Thanks for listening and Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
GE
$98.19 (2.28%) $2.19
Koninklijke Philips N.V. Stock Quote
Koninklijke Philips N.V.
PHG
$34.86 (0.49%) $0.17
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$45.83 (3.06%) $1.36
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$1,512.58 (5.91%) $84.46
Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT
Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$99.12 (4.58%) $4.34
Longview Acquisition Corp. Stock Quote
Longview Acquisition Corp.
LGVW
Nano-X Imaging Ltd. Stock Quote
Nano-X Imaging Ltd.
NNOX
$17.47 (11.12%) $1.75

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