Whether you think it is more like Facebook or LinkedIn, there's no denying that Doximity (NYSE:DOCS) is making a name for itself in digitizing the world of medicine. In this episode of Industry Focus: Wildcard, join Motley Fool contributor Brian Feroldi and Motley Fool analyst Emily Flippen as they break down this new healthcare IPO.

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This video was recorded on June 16, 2021.

Emily Flippen: Welcome to Industry Focus. Today is Wednesday, June 16, and I'm your host, Emily Flippen. Today, I'm joined by The Motley Fool's dull director of drill-downs on drastic dollar drops, Brian Feroldi. We're going to talk about a new healthcare IPO. Hey, Brian. How are you doing?

Brian Feroldi: Emily, I'm doing fantastic. This should be a really fun show, because we had an entirely different show planned at about eight o'clock this morning, but I got a message on Twitter from one of my followers named Anil Pandit; he goes by the handle @alchaps. He sent me this company that I'd never heard of before. I did a quick read through and I said, "Emily, can we cover this company instead?"

Flippen: We did. We had an entire episode planned over Babylon, which is also in the healthcare space. It was an interesting business, but I was relieved when I woke up and I saw your message, Brian, because part of me just didn't quite understand that business, I wasn't quite as excited by that business, it took all of maybe 15 or 20 minutes of the reading through this S-1, this new IPO filing where I got really excited. I think it's been a long time since I've been this excited about a newly public business.

Feroldi: Yeah. I don't mean to put two discoveries on hold too much, but when I was reading through this, two other companies came to mind immediately. One was Zoom Video Communications when I was reading through and I was like, "Wow, is there a lot to like." The other one more recently was a company called Olo, which is the online ordering company where all those S-1s, when I read through them the first time I was like, "Wow, am I interested in this business."

Flippen: Well, the words you used for me were, I think you called it the Facebook of healthcare providers. That was really interesting. You later redacted that in a Slack message to me and said, "Oh, maybe it's a bit more like LinkedIn." But I chuckled because I'm here in Texas recording from a slightly different location this month. I'm staying with a friend and I mentioned I was going to cover the Facebook of healthcare today and she knew immediately what company we were talking about today. Let's not leave our listeners in any more suspense, Brian, what business is this?

Feroldi: This company is called Doximity. I think I'm saying that correctly.

Flippen: I think so, too.

Feroldi: They filed their registration statements. Their proposed ticker symbol is DOCS, they have not come public yet, but we do have a lot of information on them. They are hoping to sell 23 million shares in total, four million of those are going to be insiders that are selling, so $19 million are coming from the company. So far, the pricing looks at about $21.50. If you do the math on that, that's going to be about just under $500 million in capital raise of which Doximity itself should net about $400 million, that remainder is going to those insiders. Again, if this pricing holds, this is about a $4 billion company. I always like to look at the mission statement if the company has one. I absolutely love it when the very first thing you see on an S-1 is the mission statement, and that's what they did here. Their mission is "To help physicians be more productive and provide better care for their patients." I like it.

Flippen: I like it so much better than the Honest Company's mission statement, which I think was the last mission statement we talked about on this podcast. That is actually tangible, that's achievable, and I know immediately what they're trying to do, and more importantly, and we'll talk about this as we get more into the podcast, I actually believe the company is taking tangible steps to achieve that mission statement. They're very physician-oriented, and that within itself with the way that they've monetized and run this business, it aligns so perfectly. I'm sorry, Brian, I'm so excited to talk about this business. If this company truly does go public at around $4 billion and it doesn't get bid up double or triple on its IPO day, I would be excited to buy in at that price.

Feroldi: Yeah, I'm right there with you. But let's share with the listeners why we think that we're so interested in this business.

Flippen: They should take our word for it.

Feroldi: Take our word for it. Again, the gist here is really simple. It is the LinkedIn for doctors, except for it's LinkedIn plus a whole bunch of extra features that make it a really attractive platform. This company has already attracted 1.8 million medical professionals as members, it actually has already grabbed 80% of the physicians in the United States, and that is across all 50 states and includes every medical specialty and subspecialty. At its core, this is a networking tool, but it does much more than that. This is an app that any physician could go on and download to their phone, and if they do so provides them with lots of tools. It allows them collaborate directly with other healthcare providers that are on this platform, and when you have 80% of the physicians in United States, there is a lot of people that you can collaborate with, you can coordinate patient care with other providers, it's not uncommon for patients to see multiple providers depending on what's going on with them, you can get information from both pharmaceutical companies as well as the latest on medical research that's coming out, you can send secure messaging to your patients, and that's an important feature where you can sense like say, a text message out for somebody, and it does so anonymously so that the patient does not get access to the doctor's phone number to respond back, and it does so securely, it also handles digital faxing, you can perform a virtual patient visits, so there's a telehealth angle here, and in addition to all that, you can also manage your career on this thing and find other job opportunities. This is an app that has a lot of uses.

Flippen: I know a lot of our listeners are probably thinking to themselves right now, "Well, there are a lot of businesses that are trying to digitize healthcare, trying to improve our healthcare system by adding technology." You may think, "Well, these are very legitimate competitors to this business," and you're not wrong. But I think what stood out to me most when reading through this filing and digging into some of their roadshow materials, was just how much their competitor is just these outdated legacy systems. There really is a laggard, I think, that exists in the healthcare industry. Things like faxing are still very common. It's less about being this single provider of digital healthcare for physicians and really more about just convincing their already huge network of physicians to move to digital from legacy outdated options, and that within itself is pretty interesting to me. I think the number they provided was that three quarters of physicians feel tech burnout because they just can't use the technology they want to in their everyday lives. This business really seeks to solve that problem.

Feroldi: Yeah. To be clear, this is not just a company that's focused on electronic medical records. There are lots of companies out there that are tackling that need and that opportunity remains huge because to your point, a lot of physician offices, you still go in there and it's paper and pencil and appointments is a hassle, and to share information, they have to fax and they're still using beepers to keep in touch with each other. There is a tremendous amount of room for that industry to be disrupted. But this tool specifically, it's really about communication and collaboration among physicians, as well as it's also a recruiting tool. It doesn't compete with EHR systems, it can be used in conjunction with them.

Flippen: Which makes it that much more interesting to me. There's more components than just the medical professional tools. The medical professional tools are awesome; the networking, the news feed, and their productivity options, but it also has consumer facing, by consumer, I mean, maybe patient facing interactions that would make, again, my friend familiar with the platform. As I dug into some of the data here on things like their telehealth offerings, it made me a little bit sick to my stomach and a bad way. I'm a Teladoc shareholder. I think I've always been happy and proud to be a Teladoc shareholder. This scared me, Brian. It scared me genuinely to my core.

Feroldi: I guess that's interesting to know because this company hasn't been involved in the telehealth space for all that long. They basically rolled out that feature in 2020 or maybe 2019. But to your point, over the last fiscal year, of which their fiscal year ends March 31, so from March 31, 2021, backwards, they performed 63 million telehealth visits. That shows the power of having this many physicians on their network and making it easy. Physicians can use their audio features and video features to do telehealth services. Sixty-three million in essentially 18 months of rollout is insane.

Flippen: It was almost an afterthought for this business. The pandemic happened, they thought, man, we have 80% of these healthcare professionals or physicians already on the network. Might as well for some telehealth there too, 63 million visits for comparison purposes, in comparison to Teladoc. Teladoc did 11 million visits in 2020, which I thought was pretty stellar. 63 million when you had just launched this telehealth option, around a year-and-a-half ago, is mind blowingly outstanding. It actually goes down at, I don't want to front run your point here, Brian. But it goes down to some of the network effects that I think exist in this business, that really gives it some level of optionality, that in my opinion, it's really undervalued if this thing goes public at $4 billion.

Feroldi: To be clear, that might not be a one-to-one comparison that you can go on between the two. This platform enables voice and video dialers to go off to allow for quick communications. If you're looking at a Teladoc visit, those are like standard visits with let's do a checkout on you, let's give you care. That can be 20 minutes or half an hour. This might just be small messaging that gets included as a telehealth. There's also reimbursement contracts that are in place that protect Teladoc. I wouldn't be freaking out just yet, but more importantly, it just shows the power of this platform, and when you have a network of doctors like that in place, what can be done when you can roll out a product quickly.

Flippen: Definitely. When you look at their other offerings, or I should say, when you look at their business model, how are they making money? Because presumably when you have 80% of physicians in your network, you're not charging them for this platform, right?

Feroldi: Yeah, that's correct. This is a tool that doctors can download and use for free, which again shows why so many of them are willing to do so. Now once those doctors are on your platform, there are several ways that they can be monetized and this company has done so in several different ways. The No. 1 way that they monetize their doctors, their users, is with their product category they just call marketing solutions. These are fees that are paid primarily by pharmaceutical companies to push out advertising campaigns to get their information in front of doctors. As a former sales rep that was in this industry, I mean, I was in medical devices which wasn't exactly pharmaceuticals, I can tell you that companies will pay through the nose to get their information in front of doctors. Reaching key decision-makers is incredibly challenging. But if you can send a message that is going to be right there on their app, and useful to them when they are meeting with a patient, wow, is that an important feature.

Flippen: I never knew that about your history, Brian. I had some commentary about my disdain for I think the way pharmaceutical companies have to sell essentially their products to physicians and doctors. I think if I had to pull out one thing I didn't like about this company, it would be that aspect of the business. It would go down to David Gardner's investing tenants of making your portfolio look like the best vision of the future. I think that was maybe holding back with this business a little bit. Although clearly, I'm not as familiar with it as you are. What I will say, I like a lot about the way they've gone about marketing and working with these outside companies, these third parties, that are trying to reach physicians, is that they didn't do it the easy way and they actually take some time in their S-1 to chat about, how we could've just abuse the platform. I think they called out banner ads as a good example of a way that they could make the platform more monetizable, and collect what they call easy revenue. But then also really turned off physicians from using it from a professional networking aspect. But instead, they chose to monetize it the hard way. I like the fact that they aren't maybe giving in to this easy revenue, and instead, really going back to their mission statement of putting the physicians first, letting them help patients, and then finding a way to achieve that mission, by incorporating, advertising, and then these solutions, from things like pharmaceutical healthcare providers.

Feroldi: Yes, I like that too. Once we get into the financials, you are like, this is without abusing the platform, they're doing this well financially without that. But more importantly, marketing is their major revenue source right now, but it's not their only revenue source, it is 80% of revenue. The customers in this case are those pharmaceutical companies, and they have lots of data in here that shows they signed on a top 20 pharmaceutical company years ago, and they put one brand of drugs on there, and they sold it in one campaign in 2013. Fast-forward to today, that same pharmaceutical company is now using 29 brands, and the average rent is being monetized with three different modules that this platform arrived at. That does show you the land and expand nature of this platform, as well as the fact that it is a subscription-based business. But that's just one way that they monetize their platform. Another way that's very interesting and really makes this the "LinkedIn of healthcare" is their focus on hiring. This platform can be used by physicians to find jobs, and it can also be used by recruiters and hospital systems to find physicians that might be interested in working for them. In that way, it very much is like a LinkedIn tool that people can use to find openings for themselves and apply for positions.

Flippen: Again, going back to the 80% of physicians across the United States that are already on this platform. If you think to yourself of how well, this can't compete with LinkedIn. You're never going to get the scale of LinkedIn. To some extent they already have, and I think they have a pretty sizable, more than 50% of nurse practitioners as well. Again, not just physicians finding ways to expand into, I guess I'd say ancillary career fields, not quite ancillary by other people who work in the healthcare profession as well.

Feroldi: Yes. This is a niche offering. One thing that the company didn't say so far is that 20 out of 20 pharmaceutical manufacturers are on this platform, and 20 out of the top 20 hospitals in healthcare systems are on this platform. LinkedIn is a platform that is designed to work for everybody. I mean, they have I don't even know how many members at this point, probably a few 100 million. This platform is far more niche, and I think that the targeted nature of that makes it a far more attractive place to look for a job if you're a healthcare provider and something that's broad and generic like LinkedIn.

Flippen: Then on top of that, when you think about the subscription revenue, I know you mentioned that a majority of their revenue comes in through subscriptions. That gives them a lot of visibility into what their revenue pipeline could look like, just as the business exists today. I know they have more than 500 subscription customers. Now there is some concentration among those customers. I believe only around 200 have contributed at least $100,000 more, and I think that number drops to around 29 for customers that are representing more than a million dollars in subscription revenue every year on the platform. But that alone is still extremely impressive. The concentration, I have to be honest, given how narrow the healthcare market is in terms of the big players, wasn't as bad as what I was expecting.

Feroldi: Yeah, they do have over 600 customers in total, and to your point, 200 of them are spending $100,000 or more on the platform. Importantly, if you compare that to a year-ago, only 141 of them were spending that much, and the year before that only 113 of them were spending that much. This company has a clear history of not only adding new customers, but getting them to spend more. There is no better metric for showing that number than net revenue retention rate. Hold onto your heads, this company's net revenue retention rate in 2021 was 153%. I mean, that is an incredible number. That includes, again churn, 153%, they grew their revenue, they would've grown the revenue 53% if they didn't add a single new customer. That's incredible and really speaks to the value of this platform.

Flippen: I hear the skeptics, I hear Emily Flippens out there going, "Well, come on, Brian, it was 2020. What did you expect? Of course, to have great net revenue retention rates, and 2020 when the world is turned upside down." But it was more than 130% over the last two years as well. There you go. The Flippens out there, the skeptic, what I tried to be skeptical here, I did, you know I take that critical, I find weak points where I can. But this is truly some incredible numbers. I can't remember the last time I saw a company go public with a net revenue retention rate above greater than 150%. I think Twilio is maybe the only one that comes to mind.

Feroldi: They are rare and the fact that this company produced that, again at scale is exceptionally rare and yeah, to your point, they've been over 130% for the last three years, so wasn't just a one-time anomaly. Now, given what we just said, let's get into the financials because they are impressive. Over the last fiscal year, which again ends on March 31st, so this is very relevant data, revenue grew 78% to $207 million. Even more exciting to me is the gross margin in the most recent quarter was 88%. That's incredible.

Flippen: I feel like I'm being pumped. I feel like I've done so many of these shows and it's been so long since I've heard about not only revenue growth that quickly at this level of valuation, gross margins nearly 90%. But I will tell you what really just blew my mind. Maybe thinking that there's cameras in my hotel room right now trying to catch my reaction to this totally impossible story is the amount of free cash flow this business generates. You mentioned that you wouldn't believe that financials when you started off this podcast and I still don't know if I believe that they have nearly 40% free cash flow margins. I mean, enough money that I almost have to wonder why they're choosing to go public, we'll talk more about their structure and why they may be going public. But it's not because they need to raise money to stay in business. This is a cash flow positive business.

Feroldi: Cash flow positive and profitable. Not only is it profitable, it's very profitable. The nice thing about a gross margin of 88% is that it allows you a lot of room to reinvest in the business and still produce profits. Over the last quarter, the company only spent 26% of its sales on sales and marketing expenses. R&D was next at 19% of sales and general administration was 9% of sales. You add that together and subtract all that out, that still leaves 32% of sales that are profit. This company reported $50 million in profit and $207 million in sales, and free cash flow was even higher at $78 million, so yes, this company isn't coming public because it has to, it's coming public because it wants to.

Flippen: Now, a lot of that is because let's go back to coming public because at once we should clarify, going public because a lot of its venture capital investors want it to. But I'm not going to punish the business for that, I think only one of their original investors is partially selling out as part of this IPO. I'm sure they will take the opportunities as they see fit to potentially sit with this business. But as a retail investor myself, if they want to sell it to me, I won't bite them.

Feroldi: Yeah, I'm sure they've done just fine on their initial investment in this company. The company did have a pretty strong balance sheet prior to coming public, it did give us a look at what the balance sheet would look like if they did come public at the current valuation and they estimate that they'll have over $500 million in cash on their balance sheet and no debt. Another thing that jumped out to me was that stock-based compensation for the prior 12 months was only $7 million. Now, that's the company being a private business, and when they come public, it's normal for that stock-based compensation number to go up, especially in the first quarter when a whole bunch of say, options trip because of that liquidity event. But if that number is anywhere close to reality, what's this company has a post-IPO that is not a high number at all.

Flippen: When you look at the mode of this business, my first inclination and seeing how quickly they rolled out telehealth services, there's maybe more of a multi here, then people may assume, but also in mobility or the fact that healthcare in general is a pretty fragmented industry in terms of technology providers in this space. That it could be challenging to take on a lot of behemoths when it comes to social media aspects. Do you think this business is in the process of building out a moat? Do they already have one created?

Feroldi: Yeah, I think so. If I was to pinpoint a moat here, it would definitely be the network effect. Again, one of the key features of this tool is the ability to collaborate with other physicians on patient care and that feature is most useful when every physician is on the same platform. The fact that the company has already captured 80% of physicians in the United States, I think, does provide this company with a moat. The other one I will point out is that there are some switching costs because doctors can use this platform to set up workflows for themselves that makes it easy to coordinate with other physicians they have come up with and reach out to patients. Once you do that, that does create some tie-in effects for the physicians themselves to stay on there. Not to mention the fact that they can also do recruiting and everything through this platform. But that moat is more on the user side. It's not so much on the customer side. Remember that really the customer here so far is pharmaceutical companies. I also think that there are some scale advantages to this business. Again, a pharmaceutical company and I are launching a new drug, wouldn't it be great if I could get my information out to all physicians that could potentially subscribe to that drug instantaneously. This platform allows you to do that. That's powerful.

Flippen: That does come with its own risks though. I mean, the regulatory risks that exist with a secure platform like this does mean that when you're talking about pharmaceutical companies reaching out, marketing to doctors. There are some inherent risks there and they do spend a decent amount of time in their S-1 talking about the healthcare system in the United States and how that inherently poses a risk to the business if and when regulations change. That being said, we as a country, I think here in the United States tend to be slower to change than people may often assume, so I don't actually see that as a very tangible risk for this business.

Feroldi: If anything, I think that that actually adds to the moat. They remind me very much of how Veeva Systems was able to succeed when it was facing up against Salesforce, the healthcare industry is such a different beast than so many other businesses. I think that Doximity is actually protected here because it's already figured out all those regulatory loopholes. I mean, can you imagine figuring out how to get here? That is the regulatory thing that LinkedIn would almost be nuts to want to take on, because that only is a very small use case for its user base. Again, I think that those protect oximetry from competition.

Flippen: Definitely. There's no denying the opportunity here. I am not even sure if we need to repeat it to our listeners, but it's worthwhile. You put some great notes in here, about just the size of the U.S. healthcare market. People may think, well, the reason why Salesforce didn't get interested in the healthcare market was because it wasn't worth the time, it wasn't worth the effort. But an entirely new platform for small market opportunities. Veeva proved that wasn't the case and you could argue the same thing in the situation.

Feroldi: I think so too. I mean, the company does throughout some pretty lofty total addressable market opportunity numbers for itself. It's up to you whether you believe them or not. They think that the opportunity to grow within U.S. pharmaceutical companies is over $7 billion. The marketing and staffing industry in the healthcare system it's about $7 billion. The telehealth industry is about $4 billion, you add those up, and the company believes that its current total addressable opportunity is over $18 billion. Again, this is a company that did about $200 million in trailing 12-month revenue. According to them, they've captured 1% of their market opportunity.

Flippen: I have some concerns about not just how they define their market opportunity, but some metrics that are missing. But before I do so I think it's worthwhile to talk a little bit through management, because this is a founder-led business. I know we loved them at The Fool, but I think what really makes me excited about this management team in particular is that I do think they have taken a harder road when it comes to running this business and how they have gone about implementing their strategy and creation of this platform. They haven't monetized it to be exempt. They think they could, especially in the future if they choose to and for that reason, I do think this is a management team that backs up their mission statements, they are led by the Co-Founder and CEO, Jeff Tangney. As you mentioned here, Brian, he previously actually founded a mobile medical reference app, which was sold to athenahealth back in 2013 for nearly $300 million. This is somebody who is very aware of the space. This is something you've been working on for a long time, but more importantly, it's going to retain a pretty strong voting control. I think 32% of voting power will remain with him as the Co-Founder and CEO after this IPO.

Feroldi: Yeah, he founded Epocrates, which was again sold for $300 million. The CEO and founder here is already rich. He's not doing this. This isn't the first time taking a company from nothing to something substantial. Doximity so far is about 12 times bigger than Epocrates was sold for. But I really like it when not only is the co-founder involved, but the co-founder already has a track record of success in the industry that he is trying to grow in, and that investors should feel really good about that.

Flippen: What did strike me as a little bit of a yellow flag was their CFO though, Anna Bryson, she's only 31 years old, joined as CFO in February 2021, so relatively new hire. She was previously the Head of Financial Planning and the Vice President of Strategic Finance at the business. Previously a founder and CEO of ACB Capital, but she has no prior, I guess, accounting experience. Typically, what I like to see in CFOs is that she has a BA and MA in philosophy, politics, and economics from Oxford. Really obviously an intelligent person, but somebody I'd have questions about in his CFO role. It seems like a weird choice especially because their last CFO lasted less than a year and the company didn't provide any information on that CFO's departure. Something to keep an eye on here, it seems like an interesting choice, especially headed into an IPO when there's going to be a lot more eyes on their filings. But just again, I'll let the yellow flag, not quite red, just strike my eye.

Feroldi: Yeah, that's an interesting point. When it comes to things like that, I don't let somebody's age or experience necessarily dictate much. I always just say, well, these people have done a great job so far, growing the business. You really have to trust Jeff Tangney knows what he's doing with this hire, and given his track record of success and what the business has become thus far, I think he deserves the benefit of the doubt.

Flippen: Fair enough, Brian. I'm such a skeptic. Then let's go on to the risks here. I think key risks have actually been maybe harder for me to pull out in terms of business risks themselves. There's information, again, information that I feel like it's missing that I'll touch on a little bit later. But some of the key risks, I guess concentration risk. We mentioned it at the top of the show, but the largest customers account for 12% of revenue and Doximity says they rely on a limited number of customers for a significant portion of their revenue. Just, again, something to keep an eye on. I don't think it's that bad. It's expected when you're dealing with the 20 largest healthcare providers in the country. But, again, something that they break out here.

Feroldi: Yeah. Customer concentration risk is always a big risk to keep an eye on. To your point, they do have one customer that was 12% of revenue, which also means that that one customer spent $24 million with this platform. You wouldn't do that unless you're getting results. But that risk, I think, is going to be diminishing over time as they grow within their other customer base, and again, they already have 29 customers that are spending one million dollars or more and 200 customers that are spending $100,000 or more. If they can keep their net revenue retention rate up over time and roll out new products and services, that concentration risk should become minimal. But yeah, that's always something to watch.

Flippen: I think my big question coming out of this is just, what can the scale be for this business? You're talking about a platform that claims to already have 80% of physicians registered on it. How do you monetize that more deeply? We keep using LinkedIn and Facebook as examples, but they've been so great because they've managed to deepen their network year-over-year, deepen that monetization strategy. I'm a little bit worried that when we're looking at a business doing just over $200 million in revenue with already a huge amount of scale in terms of the physicians on their network, that this maybe isn't the biggest market opportunity. Again, the management team defining their market opportunities so broadly does make me a little bit concerned about their strategy to expand. Just, again, a yellow flag that I'll be keeping my eye on.

Feroldi: Yeah. That's definitely also something to keep an eye on. How big really is the opportunity here? The management says it's $18 billion. But saying it and actually being that are two different things. Again, I'm just going to come back to saying Veeva Systems, when that company came out, it was sure, they're doing great in the CRM space for life sciences companies, but they can't expand beyond that. Then they're going to face off against salesforce.com, and man, did I really underestimate that company's long-term potential. The other thing here is the company has clearly shown signs already of optionality. Again, the telehealth business didn't exist 18 months ago and they got 63 million visits over the trailing 12 months. What other products or services could they roll out over time? Another thing I do want to say is that in the S-1 here, when they say the reason that they are raising funds, one of the reasons that they say is we could use these funds to make acquisitions and they've called out acquisitions as a potential growth opportunity for this business over time. It's possible they are coming public because they have their eye on something and they want the capital to make the transaction.

Flippen: I'm going to let you wrap up here, Brian. Give us your summary, the key points that you like, what you don't like, what you could be looking for. But before you do that, I'm going to put a damper on the conversation. [laughs] I'm going to talk about two things that I thought were missing from this S-1. When I think about the platform at its core, it's being driven by two main things. It's being driven by engagement from physicians or medical professionals, you need them actively using the platform, and it's being driven from what is right now advertising revenue from places like drug and pharmaceutical companies. I want metrics that get at those two things and they do break down on the advertising side one metric. It's a third-party return on investment. Their median is pretty impressive. They say it's a 10-1 return on investment in comparison to traditional options for the business, which would imply that these customers will continue to use their platform even post COVID. They'll continue to deepen that engagement. But that was the only metric they provided and it was a third-party metric. It wasn't about how management thought about these numbers.

The other thing that was actually completely missing was engagement numbers from this supposed 80% plus physicians that are using the platform. They kept saying, "We deepened engagement. We saw increased engagement. Engagement is going to be so critical." But they didn't provide a lot of metric-driven numbers to actually support those claims and it makes me a little bit concerned. I would've loved to see a monthly average user for a physician. How often is a physician actually checking this app on their phone? Are they doing it on a daily basis? Are they doing it on a weekly, monthly, yearly basis? Those are the numbers that I just thought were missing, and for that reason, I feel like at its core, I don't have a great sense about just how sticky this platform is, which does make me nervous.

Feroldi: I think all of that is completely fair and those are completely valid points. When it comes to stuff like that, like you, I like to get that information upfront but I always let the financials do the talking and say, "Management is saying blank, does it have the data to [laughs] show that blank is actually turning into revenue and profits for investors?" To me, there's no doubt that the answer to that is yeah, that's really happening here. If I were to summarize this business, I think there's a lot to like here. I like that it's mission-driven. I like that it's founder-led. I think that this company is solving an important problem both for the physicians and for their actual customer, with their pharmaceutical companies. I also think that they haven't even talked about other life sciences businesses at all. Medical device industry is also massive and spends heavily, and this platform seems an ideal way for them to market that too. I think the company has built out a nice moot for itself and it's protected by network effects. I like recurring revenue. I like the margins. I like the inside ownership. I like the high-growth and it's profitable, and it also has already signs of optionality.

This company checks a lot of boxes for me already. If I had to critique it, I would say, one, it's going to be expensive. There's no doubt that this company is going to be expensive. It's pricing at 19 times sales and 93 times trailing earnings. What's it going to be once it actually becomes tradable? I mean, 30 times sales, 40 times? I don't know how much of a pop is going to be on day one. Two, how big is the pie really? Yes, they are saying that it's $18 billion. How much of that is actually capturable? I don't know. Three, is there any room for operating leverage here? The company is already spitting out 32% net profit margins. Can that number go higher over time? Probably not. That means that profit growth is going to be tied at the hip to revenue growth. I think there's room for revenue growth for sure, but I like it when a company can grow its revenue and its margins at the same time. Then finally, I don't know if this concept translates outside the US borders at all. The U.S. healthcare market is massive, but I like it when the U.S. is the starting point for our business and then it can take those profits and brand name and reinvest outside of the U.S. market. I don't know if that's potential here, but if we take it all together, I think there is a lot to like.

Flippen: Well, I learned a lot from today's episode, Brian. I think the thing I learned the most beyond this amazing company is that it pays to follow you on Twitter, to pin you on Twitter. Again, shout out to Neil for today's show idea and a reminder that if you aren't following Brian Feroldi, @BrianFeroldi, you should be doing it. He's a great Twitter follower. But Brian, thank you again for coming on and sharing your thoughts.

Feroldi: Thanks for having me, Emily.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out to say "Hey," shoot us an email at industryfocus@fool.com or tweet at us @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.