Please ensure Javascript is enabled for purposes of website accessibility

athenahealth's Heavenly IPO

By Tom Taulli - Updated Apr 5, 2017 at 4:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The health-care software company has a splashy debut on Wall Street.

With both the Dow and the Nasdaq surging, this was a great week for an IPO, as seen with the debut of athenahealth (NASDAQ:ATHN). The company's shares nearly doubled to $35.50. Then again, athenahealth's management claims that its market opportunity is a whopping $27 billion.

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 (NYSE:GE), McKesson (NYSE:MCK), and Siemens (NYSE:SI).

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 (NASDAQ:FIRE) and Limelight Networks (NASDAQ:LLNW). Besides, athenahealth is trading at more than 12 times revenue. This compares to multiples of four to six times revenue for other Web-based software companies like Taleo (NASDAQ:TLEO) and RightNow (NASDAQ:RNOW). So for Foolish investors, it's probably a good idea to wait for the hype to subside on athenahealth.

More Foolishness:

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
$62.03 (-2.38%) $-1.51
Siemens Aktiengesellschaft Stock Quote
Siemens Aktiengesellschaft
$49.01 (-3.39%) $-1.72
McKesson Corporation Stock Quote
McKesson Corporation
$322.38 (-2.17%) $-7.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.