WebMD (NASDAQ:WBMD) recently announced a repurchasing of 5.5 million shares from Carl Icahn and affiliates for a total of $177.3 million, a move that came as the company stabilizes its future outlook..
The leading health portal in the U.S., WebMD provides free medical information online for patients and health care providers, pulling revenue from advertising and sponsorship. Its prominence among patients is relatively unchallenged as the company has successfully branded itself to be synonymous with reliable medical content, responsible for websites WebMD Health, Medscape, MedicineNet, eMedicine, eMedicine Health, RxList, theheart.org, and Medscape Education. Anecdotally, many practitioners routinely use WebMD content for patient education and patients often enter their doctors' offices with information and questions from WebMD.
While the company seems to have turned a corner, its history has long been plagued by uncertainty. When Icahn initially invested in late 2011, WebMD lost nearly half its value within six months and was reportedly in talks with private equity firms to sell itself. They were reportedly riddled with operational inefficiencies and underwent serious cost-cutting measures -- layoffs, restructuring, changes in management. FDA regulations on advertising have tightened for health consumer websites, and Google retooled its search algorithms earlier this year, impacting the ranking of several of the company's consumer sites. The company reported a loss of $1.54 million in the first quarter of this year due to some of those factors, although the second quarter brought the company back to net profits with quarterly earnings of $0.05 per share and revenue of $125.30 million, surpassing consensus estimates.
The buyback may signal an increased confidence from the new management in the value of the company; its projected normalized earnings per this year is $0.92, and shares have doubled already.
Patient-centered vs. provider-centered
From a clinician's perspective, WebMD is unrivaled in its dominance for patient education. Few other sites are as pervasive as WebMD's arsenal, although there are a couple notable, privately held ankle-biters. Among them, Sharecare.com is certainly worth noting, touted as a comeback for WebMD founder Jeffrey Arnold and media personality Dr. Oz.
Nonetheless, WebMD's major competitors come as it tries to expand beyond a health portal for patients. UpToDate by Wolters Kluwer occupies a similar space as WebMD, but for health care providers. It is largely used and accepted as the primary source for fast, evidence-based clinical information; while primarily for providers, it does have a certain amount of content free to patients. To that regard, it may overlap with WebMD but its profit model is dependent largely on subscription fees rather than advertising.
Similarly, Epocrates, recently acquired by athenahealth (NASDAQ:ATHN), developed the self-named leading medical application among physicians in the US. The company specializes in providing information through handheld devices, its main application a widely used drug reference for clinicians with basic information, dosages, interactions and pictures. It also includes tools such as provider directories, symptom searches, calculators and tables. The company also receives revenue from subscription fees, as well as pharmaceutical sponsorship.
Athenahealth's acquisition of Epocrates itself validated the value of the mobile health company. Athena, known for its role in cloud-based medical records and tools, certainly has the network of physicians to further spread Epocrates' success.
WebMD is hardly yielding the mobile medical space, however. Already with several mobile applications under its belt, WebMD is making significant headway into wireless digital health. Earlier this year, WebMD and digital giant Qualcomm (NASDAQ:QCOM) partnered to create Health Cloud, a cloud-based system for patients to store mobile health data. While this begins to fall into the scope of Athena's domain of cloud-based services, WebMD continues to enter it from a patient-based, not provider-based angle, possibly avoiding any direct competition.
Qualcomm's partnership with WebMD certainly throws significant weight behind the smaller corporation. Qualcomm Life, the subsidiary of Qualcomm responsible for its expansion into the health space, is also independently expanding its mobile health products, recently launching 2net Hub API and Software Development Kid, which allow partners to integrate their health care devices into the Qualcomm's library.
Digital pharma in the U.S. is burgeoning as incentives to transition to electronic records and mobile medicine spur a rush to catch medicine up to the rest of society, technologically. WebMD is rebounding from years of poor performance on the stock market and is very much enjoying its position as premier health portal for patients. However, it historically faced significant operational challenges. Nonetheless, WebMD has surpasses most consensus estimates in this past quarter, has a serious partnership with wireless giant Qualcomm, and does not seem to have a direct competitor catching up yet. These factors may make the $177.3 million buyback from Icahn a possible signal that it is putting its money where its mouth is.
Fool contributor Amy Ho has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.