NEWS

American Well Continues Converge Platform Focus

Dec 31, 2021
Senior woman on a video call with her doctor

Marko Geber/DigitalVision via Getty Images

A Quick Take On American Well Corp.

American Well Corporation (AMWL) went public in September 2020, raising around $742 million in an IPO that was priced at $18.00 per share.

The firm provides a telehealth platform for health system participants in the U.S. and overseas.

However, AMWL’s growth trajectory has stalled.

Long term, I’m enthusiastic about AMWL’s positioning with its new Converge platform, but short term, my outlook on the stock at around $6.15 is Neutral.

Company

Boston, Massachusetts-based Amwell was founded to develop the Amwell Platform, a telehealth system that enables a wide variety of healthcare services to be delivered remotely.

Management is headed by Chairman and Co-CEO Ido Schoenberg, MD and President and Co-CEO Roy Schoenberg, MD, MPH.

Ido was previously Co-founder of iMDSoft and Roy was previously the Founder of CareKey, an electronic health management software vendor.

The firm has clients among health systems, health insurance plans, employers and retailers.

The company’s primary offerings include:

  • Telehealth

  • Telestroke

  • Telepsychiatry

  • On-demand consultations

  • Scheduled consultations

  • Pre-packaged care modules programs

  • EHR Integration

  • Converge with third-party and device integration support

The firm works with large entities to embed its telehealth capabilities within their workflows and pursues new business via a direct sales force.

The onset of the Covid-19 pandemic was positive for demand for the firm's system, with a 300% increase in total monthly telehealth visits in Q2 2020 versus Q1, as shown in the graphic below:

(Source)

Amwell’s Market Competition

According to a 2020 market research report by MarketsandMarkets, the global market for telehealth software and services is expected to reach $55.6 billion by 2025, up from a forecast of $25.4 billion in 2020.

This represents a strong CAGR of 16.9% from 2020 to 2025.

The main drivers for this expected growth are a sharp increase in monitoring of chronically ill and elderly patients and improved telehealth monitoring devices and connectivity.

Also, providers continue to offer an increased number of specialty services via remote means as they seek to improve care quality while increasing productivity and reducing costs.

Below is a chart showing the historical and projected growth rates in telehealth usage by global region:

(Source)

Major competitive or other industry participants include:

  • Doctor On Demand

  • Teladoc Health (TDOC)

  • MDLive

  • Philips

  • Medtronic (MDT)

  • GE Healthcare (GE)

  • Cerner (CERN)

  • Siemens Healthineers (OTCPK:SIEGY)

  • GlobalMed

  • Chiron Health

AMWL’s Recent Financial Performance

  • Topline revenue by quarter has largely plateaued in the five quarters shown below:

  • Gross profit by quarter has risen against flat topline revenue:

  • Operating loss by quarter has remained significantly negative:

  • Earnings per share (Diluted) have followed the trajectory of operating losses:

(Source data for above GAAP financial charts)

In the past 12 months, AMWL’s stock price has dropped 77.1 percent vs. the U.S. SP 500 index’s rise of 28 percent, as the chart below indicates:

(Source)

Valuation Metrics For Amwell

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Amount

Market Capitalization

$1,490,000,000

Enterprise Value

$736,410,000

Price / Sales

6.28

Enterprise Value / Sales

3.06

Enterprise Value / EBITDA

-5.02

Free Cash Flow [TTM]

-$37,170,000

Revenue Growth Rate [TTM]

4.61%

Earnings Per Share

-$0.72

(Source)

As a reference, a relevant public comparable to AMWL would be Teladoc (TDOC); shown below is a comparison of their primary valuation metrics:

Metric

Teladoc (TDOC)

American Well (AMWL)

Variance

Price / Sales

7.56

6.28

-16.9%

Enterprise Value / Sales

8.00

3.06

-61.8%

Enterprise Value / EBITDA

-29.93

-5.02

-83.2%

Free Cash Flow [TTM]

$265,110,000

-$37,170,000

-114.0%

Revenue Growth Rate

114.7%

4.6%

-96.0%

(Source)

Commentary On Amwell

In its last earnings call, covering Q3 2021’s results, management highlighted the initial uptake in demand for its new Converge platform as existing clients indicate interest in upgrading.

Notably, CEO Ido Schoenberg sees a high percentage of health plans seeking to increase their investment in virtual care, especially in the areas of behavioral health and chronic condition management.

Additionally, health plans are looking to consolidate their virtual activities on one platform, which plays into the company’s strategy with its Converge platform rollout.

Central to the new platform’s capabilities is its ability to integrate third-party applications and devices, increasing its extendable functions and creating the potential for an ecosystem approach.

As to its financial results, topline revenue has largely plateaued as the firm spends time and effort converting existing clients to the new Converge platform, and COVID-related visit revenue remained essentially flat.

Revenue growth has been tepid as major health systems have delayed new hardware deployments.

Operating costs increased due to greater RD expenses and increasing sales marketing spend.

However, on the balance sheet, the company ended Q3 with $790 million in cash, a large hoard giving the firm more than ample cushion to continue to execute its business plans.

Looking ahead, management sees customers delaying moving to the Converge system as it integrates its recent Carepoint acquisition and flat revenue from visits on the system.

Regarding valuation, compared to legacy competitor Teladoc, Amwell’s stock is currently being valued at lower revenue multiples which is not surprising given its far lower topline revenue growth rate.

Amwell appears to be well-positioned for longer-term trends in the virtual health technology marketplace towards platform convergence and extensibility.

The challenge for the firm in the shorter term is to reignite growth, which has been disappointing as the pandemic’s crisis period has waned.

Long term, I’m enthusiastic about AMWL, but short term, my outlook on the stock at around $6.15 is Neutral.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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