What's Next For Amwell After 55% Growth From IPO Price?
Amwell (NASDAQ:AMWL), a telehealth company that went public recently, is now valued at about $6.5 billion, or about $28 per share, implying 55% gains from its IPO price of $18 a share. The company trades at 18x trailing Revenues – largely in-line with some other telehealth companies. Can Amwell justify this valuation? In our interactive dashboard analysis on Amwell Valuation: Expensive Or Cheap we break down the company’s revenues and valuation and compare it with peers. Parts of the analysis are summarized below.
A Brief Look At Amwell’s Business & Risks
Amwell is a Boston-based telemedicine company that connects patients with doctors over secure video. Amwell is backed by Alphabet’s Google, which reportedly invested $100 million in the company. Amwell also raised $525 million in an IPO recently. In the wake of Covid-19, there has been a massive surge in demand for telehealth service providers. Given restrictions on movement, many people have opted for telehealth services. Amwell itself has seen a large 300% increase in total monthly telehealth visits in Q2 2020 versus Q1. While Covid-19 is surely a boost for telehealth service providers, the overall industry is expected to continue to grow at a strong CAGR of 17% from an estimated $25.4 billion in 2020 to $55.6 billion in 2025, according to a research report.
Let’s take a closer look at what’s driving Amwell’s Revenue. Amwell has three operating segments. 1) Platform Subscription, which include revenue generated from contracts with customers who purchase subscriptions to access the company’s telehealth platform. 2) Visits – which includes revenue earned from medical visits on the company’s platform, and 3) Others – which includes revenues from professional services associated with Amwell’s telehealth platform. It also includes the sale of hardware products, such as telehealth carts.
Amwell’s Visits Revenue grew from $26.5 million in 2018 to about $40.7 million in 2019, as the company saw an increase in total visits from 0.6 million in 2018 to 0.8 million in 2019. Based on the historical growth rate, and growth over Q2 (the total Visits revenue stood at $62.5 million in Q2 2020 compared to $18.5 million in the prior year quarter), we expect Amwell’s total Visits revenue to grow to about $183 million in 2021. We estimate Amwell’s Total Revenue, which includes its revenue from Visits, Platform Subscription, and Others to grow from $149 million in 2019 to $249 million in 2020 and $331 million in 2021.
Now Amwell is not only adding new customers at a rapid clip, but it is also better monetizing its existing users, evident from the growth in revenue per visit, which grew from $48 in 2018 to $54 in 2019. This trend will likely continue in the near term aiding the overall margin expansion for Amwell. Currently, Amwell is running into losses, which increased from $52 million in 2018 to $88 million in 2019, and $113 million in H1 2020, as the company is currently focused on growth over profits. That said, this appears to be the right strategy as well, given that there is minimal marginal cost to add new users on an existing platform. As such, margins are expected to improve in the long run.
Is Amwell Trading At A Premium Over Peers?
With benchmark interest rates at near-zero levels, investors have generally been paying a premium for growth. However, Amwell stock, which trades at about 18x our projected FY’20 revenues for the company and 14x FY’21 revenues, appears reasonable, and in-line with its peers. Let’s compare Amwell with other telehealth players. Teladoc trades at 17x expected 2020 revenues of $12.95 per share, and it will likely post around 70% revenue per share growth in 2020. Livongo Health trades at 38x estimated 2020 revenues of $3.70 per share, implying 11% y-o-y growth. Note that earlier in August 2020, Teladoc announced its merger with Livongo to create a $37 billion health-tech company.
Now Amwell is expected to see 67% top line growth in 2020, and it shouldn’t command a premium over Teladoc growing at slightly higher pace (70% estimated growth in 2020). As such, we estimate that a P/S multiple of around 17x to be reasonable for Amwell, roughly in-line with 17x for Teladoc, implying a stock price of $28 based on 2020 revenues of $1.60 per share. With AMWL stock already trading at $28, there is currently little room for growth in our view.
While Amwell offers high growth, we think it is fully valued at current price. What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus less than 50% for the S&P 500. Comprising companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
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