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3 Reasons to Buy Butterfly Networks Right Now

By Cory Renauer – Aug 29, 2021 at 6:13AM

Key Points

  • Butterfly Networks' handheld ultrasound transducers use proprietary ultrasound-on-a-chip technology instead of piezoelectric sensors.
  • The company's flagship Butterfly iQ+ device is far more durable than legacy equipment, and costs less than half as much.

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This tiny manufacturer of handheld ultrasound devices has an edge over the competition.

Looking for disruptive businesses that could grow to many multiples of their current size? If so, Butterfly Networks (BFLY -1.15%) could be right up your alley. 

Right now, medical imaging services are a lot more expensive than they need to be. Butterfly Networks aims to disrupt the market for handheld ultrasound equipment with a better mousetrap. Here's why its shares could push your portfolio higher.

Physician showing a patient their ultrasound.

Image source: Getty Images.

1. A cost-effective solution

Legacy ultrasound equipment relies on old-fashioned piezoelectric sensors. Butterfly Networks' flagship product, the Butterfly iQ+, is a handheld, battery-powered ultrasound transducer that does the same thing using ultrasound-on-a-chip technology, giving healthcare providers a less expensive way to look inside their patients without leaving the examination room.

The Butterfly iQ+ carries a list price of just $1,999, so it would be no surprise if it rapidly becomes more popular than General Electric's (GE 1.90%) Vscan Air, the current market-share leader in this niche. While GE's device produces somewhat sharper images, it's more than twice as expensive and several times more fragile.

2. Huge addressable market

Butterfly Networks' management views ultrasonography services as an $8 billion per year opportunity at the moment. But if doctors have easy access to a simpler solution like Butterfly iQ+, we can expect them to employ sonography in ways that just aren't possible with legacy equipment.

Butterfly iQ devices aren't cleared for use by anyone who isn't a trained medical professional at the moment, but that could change. The company has already completed a clinical trial that suggests patients with heart failure can effectively use Butterfly iQ at home to help physicians monitor their lungs.

More than half a million new patients are diagnosed with heart failure each year. Hearts can weaken for different reasons, but the body almost always tries to compensate by raising the volume of blood available. All that added fluid can quickly end up pooling in patients' lungs. 

Acute heart failure puts more patients back into hospitals within 30 days after being discharged than any other diagnosis. That's why Medicare alone spends more than $20 billion annually hospitalizing heart failure patients. Letting patients go home with a handheld Butterfly iQ device that can send images to their doctor could go a long way toward reducing that expense.

3. Subscription revenue

Rather than depend on constantly selling new devices, Butterfly Networks has a subscription program, and it's growing fast. For a modest fee, Butterfly Networks will help medical professionals scan, store, and share images using its secure cloud.

Though it's the new entrant to the portable ultrasound space, the company has found clients eager to sign up. Subscription revenue in the second quarter jumped 94% year over year to $3.5 million. That was also 23% more than during the first quarter, which suggests subscription sales are accelerating.

One reason for investors to tread lightly

Butterfly Networks is beginning to achieve scale, but the start-up is still bleeding money. In the first half of the year, the medical device maker lost a whopping $90 million on just $29 million in revenue.

The company had around $510 million in cash and marketable securities on the books at the end of June. That's a big cushion, but it won't last long if GE cuts prices on Vscan devices in an effort to maintain its share of the portable ultrasound device market. 

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Butterfly Network, Inc. Stock Quote
Butterfly Network, Inc.
BFLY
$3.45 (-1.15%) $0.04
General Electric Stock Quote
General Electric
GE
$86.88 (1.90%) $1.62

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