Most investors probably haven't heard of Doximity, but you'd be hard-pressed to find a doctor who isn't familiar with this cloud-based digital platform for medical professionals. The company was launched in 2011 with healthcare providers in mind, with an eye toward helping them be more productive and provide better care for their patients. Its customer list includes over 80% of the physicians in the U.S., more than 50% of nurse practitioners and physicians' assistants, and an estimated 90% of graduating medical students in the country.
Not only is Doximity growing its revenue at a robust clip, but the company is already profitable, which is unusual for an early stage company. Doximity, which is going public later this week and will trade on the NYSE with ticker DOCS, it could end up being one of the hottest initial public offerings (IPOs) of 2021.
What do they do?
Doximity is a software-as-a-service (SaaS) platform that helps simplify the lives of those in the medical profession. While it's been called "LinkedIn for doctors," that barely scratches the surface of the services it offers.
The company provides physicians with tools that help them to "collaborate with their colleagues, securely coordinate patient care, conduct virtual patient visits, stay up-to-date with the latest medical news and research, and manage their careers," according to a regulatory filing with the Securities and Exchange Commission. The company highlighted its value proposition this way:
We support physicians in an era of information overload, by solving signal-to-noise challenges with our news tools. Our newsfeed addresses the ever increasing sub-specialization of medical expertise and volume of medical research by delivering news and information that is relevant to each individual physician's patient population, clinical practice, and professional relationships.
Its customers include all of the top 20 pharmaceutical manufacturers in the country (by revenue), which use the platform to educate physicians about their products. Also included are all 20 of the top hospitals and health systems in the U.S., according to U.S. News & World Report Best Hospitals Honor Roll. Doximity boasts more than 1.8 million members across 150 health systems.
As a result, the company has 600 subscription customers, with 200 contributing at least $100,000 in annual revenue and 29 contributing more than $1 million. Doximity's scale will help provide a large pool for future growth, as the company has been extremely successful at using a land-and-expand strategy to convince existing customers to use additional services. This is evidenced by a net revenue retention rate of 153% for the quarter ended March 31.
Doximity also introduced a telehealth solution in mid-2020 and began charging for the service early this year. The company reports rapid adoption among its existing customers, noting that it delivered 63 million telehealth visits last year. Thus far, Doximity has signed 150 health systems to its telehealth services, including six of the top 10 hospitals and health systems in the U.S. This could represent a significant growth driver going forward.
If you need convincing, look no further than telemedicine leader Teladoc Health (TDOC -2.48%). For the first quarter, Teladoc grew revenue by 151% year over year, while total customer visits increased 56%. If you include sessions initiated by or between care providers, visits surged 109%.
This helps illustrate the robust growth that's happening in the telehealth sector and why it represents such a big opportunity for Doximity.
Impressive top-line growth and profitability
For the year ended March 31, Doximity generated revenue of $206.9 million, up 78% from $116.4 million in the prior year. The company has produced record revenue in each of the past two years, and it shows no signs of slowing down. Unlike many fledgling companies, however, Doximity is already profitable. During the same period, it reported net income of $50.2 million, up 69% from $29.7 million.
It's important to note that Doximity gets a large amount of its revenue from a few key customers, with one customer accounting for 12% of sales last year. If Doximity were to lose those key customers, its revenue would take a big hit.
Nuts and bolts of the IPO
Doximity will list its shares on the New York Stock Exchange using the ticker "DOCS." It plans to offer 23,300,000 shares of stock, with 19,010,750 for sale by the company and 4,289,250 offered by an early investor. We don't yet know the exact share price, but the company has initially proposed a range of $20 to $23.
Strong investor demand could push the final price even higher. At the midpoint of the proposed range, Doximity could fetch a valuation of $4.5 billion.
Management wanted to ensure that customers are fully "invested" in its success, and to this end, they're allocating up to 15% of its stock for a "reserved share program." This will allow certain doctors who use its platform to invest in the company, buying shares at the IPO price. To participate, the physicians must meet minimum eligibility requirements, based on platform activity or attendance at member advisory meetings.
Just what the doctor ordered
Doximity checks plenty of the most important boxes that are present in a winning investment: strong revenue growth, profits, and impressive customer metrics. Additionally, the stickiness of its platform is an advantage that can't be overstated, as is its strong and growing network effect.
While IPOs are inherently risky, Doximity's impressive financial and customer metrics help alleviate much of that risk and make this a compelling investment opportunity.