With both the Dow and the Nasdaq surging, this was a great week for an IPO, as seen with the debut of athenahealth
The company develops software to help manage the billings of physician practices. athenahealth does have fierce competition in the space from the likes of GE
But athenahealth has some unique capabilities. First of all, the software is delivered via the Internet, which tends to make it easier to install and maintain. What's more, athenahealth generates revenue primarily from the improved revenue of its clients. In other words, the company is incentivized to build software that really works. If it doesn't, the revenue will fritter away.
That's a powerful value proposition, and as a result, athenahealth has been racking up lots of business. About 10,500 medical providers use the system, and the contract renewal rate is roughly 97%. From 2005 to 2006, revenue increased 42% to $75.8 million. While the company posted a loss of $9.2 million last year, this is to be expected as it plows money into R&D and marketing.
However, IPOs can be quite volatile. Just look at the meltdowns of Sourcefire
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked No. 4,015 out of more than 65,000 investors in CAPS. The Fool has a disclosure policy.