Doximity (DOCS 2.57%) is one of the leading digital platforms for U.S. medical professionals and students. The company aims to help physicians be more productive in the workplace and provide better care by offering collaboration tools, telehealth services, and newsfeeds for its users. With over 80% of all medical professionals in the U.S. using Doximity, the company clearly has been doing this quite well.
Doximity just reported third-quarter results for its 2022 fiscal year, and the company blew away expectations. Revenue grew 67% year over year (YOY) to $98 million while net income jumped 223% to nearly $56 million. The company also made an acquisition that could potentially expand its dominance. Everything is moving in the right direction for Doximity -- and this quarter proved that -- which is why it might be smart for investors to consider picking up a few shares.
The financial benefits of being a market leader
Doximity makes money from advertising revenue, mostly from pharmaceutical manufacturers looking to get their newest drugs in front of the eyes of medical professionals. For drugmakers, being noticed by doctors is often the critical difference in whether the public adopts a medication. Doctors dictate where 73% of the $4 trillion in annual healthcare spending goes each year, so drugmakers will pay nearly anything to have their drugs seen by doctors.
Considering Doximity has 80% of doctors on its platform, it is one of the best places to advertise to achieve this goal. Its valuable user base has commanded incredible pricing power and advertiser relationship expansion. On average, existing customers are spending 71% more than the year-ago period -- led by its five largest customers, which grew their trailing 12-month spending on the platform by 90%. 282 customers spent $100,000 or more on the platform, up 50% from a year ago.
Doximity's share of medical professionals on its platform makes it stand out and is likely what will help it continue its leadership. On the platform, doctors, physicians, and medical students can communicate with each other professionally and casually. This aspect brings tremendous network effects to the platform: More users on Doximity make it more valuable and sensible for a new medical worker to join it rather than a competing site. In fact, 90% of medical students are on its platform.
The company is also a cash-flow king. In Q3, it posted a net income margin of 57%, surpassing that of much larger and more established businesses. With such impressive profitability, it should come as no surprise that the company also generated $25.7 million of free cash flow in the third quarter.
The growth opportunities for Amion
Doximity just announced its acquisition of Amion, a leading scheduling and messaging platform for medical professionals -- and a perfect tuck-in acquisition for Doximity. Amion enables over 200,000 users at thousands of hospitals to collaboratively build work schedules. With a mission to make the workplace more efficient for everyone, Amion can help optimize this process to avoid confusion and scheduling conflicts.
Amion also increases the company's growth opportunities. With its large customer base, which includes 18 of the top 20 U.S. hospitals, Amion could increase the activity and engagement on Doximity's platform. Now that Amion users likely visit Doximity often for scheduling, advertising becomes more valuable on the platform.
Growth beyond Amion
Doximity has numerous competitive advantages that drive its impressive profitability. So naturally the company is highly valued, trading at 235 times earnings. Other healthcare software platforms like Veeva Systems (VEEV 0.42%) trade at half that amount. The high valuation, however, should not scare investors away as the company is eyeing further growth avenues in the healthcare market, such as dentistry.
With an addressable opportunity estimated at $18.5 billion in just its current market alone, the future looks bright for Doximity. Its quarterly results only proved how strong it is in this space -- and with its new acquisition and a customer base that is becoming more loyal to the platform, I think Doximity could keep its strong grip on the industry for years to come.