On January 7, the Special Capital Manufacturing Company (SPAC) Social Capital Hedosophia Holdings III announced its $ 3.7 billion merger with Investments for clover health (NASDAQ: CLOV). The deal was exactly what the latter needed, as the liabilities outweighed its assets by about $ 488 million and had been reducing cash for some time. However, Clover Health is anything but an underdog in the healthcare sector. The company also has the support of Alphabet, in the form of an infusion of $ 130 million to address the goals of the disruption of the medical insurance industry.
Although it is a lot, the investment disappears the size of the $ 1.2 billion cash return that Clover Health received during the takeover, including $ 400 million from Chamath Palihapitiya, the founder of Social Capital. Recently, Palihapitiya took the investment world by storm again when he joined the traders of the now legendary WallStreetBets subreddit in their battle for control of GameStop stock above short sellers. As a result, many Reddit investors have now become very interested in venture capitalist venture. Can Clover Health make investors rich before 2030?
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Not just your everyday medical insurer
On behalf of the federal government, Clover Health Medicare Advantage offers plans to seniors over the age of 65 and people with qualifying disabilities. It boasts the lowest business costs in the country for doctor, specialist and prescription medicine. Those who sign up realize an average life savings of 17% if they switch from similar programs.
The secret sauce behind these savings lies in the company’s own Clover Assistant platforms, which provide real-time, data-driven treatment recommendations for physicians. It provides solutions for office visits, teleconsultation, home visits and administrative staff. Clover Assistant can reduce the insurer’s premium payout by about 12% compared to a plan without such technology.
Furthermore, Clover Health’s platform has a net promoter score (NPS) of 59. NPS, a measure of how willing a customer is to recommend the services of a business, has a scale ranging from negative 100 to 100. The company ‘s rating is excellent in the context of outdated medical record software vendors’ average NPS of negative 44.
For these reasons, it should come as no surprise that Clover Health has seen tremendous growth in membership. Between January 2018 and September 2020, the number of patients of the company increased from 30,677 to 57,503. Each member adds about $ 10,000 in annual revenue. There are now more than 2,300 physicians who cater to the needs of Clover Health members.
In the first nine months of 2020, Clover Health increased its revenue from $ 347 million in the first nine months of 2019 to $ 506.7 million. During the same periods, the company’s net loss in 2020 amounted to $ 10 million, compared to an incredible net loss of $ 367.3 million for 2019.
The significant improvement in its efficiency can be mainly attributed to the COVID-19 pandemic. Hospitals and patients have begun postponing elective procedures, sharply reducing the premium paid by health insurers to beneficiaries. The medical care ratio of Clover Health has indeed dropped to 82% from 98.2% last year.
Despite its good performance, the company is still in its early stages of expansion. At present, there are no patents that protect the Clover Assistant software. It has an impressive market share of 8%, but that only applies to 34 provinces in seven states. If we look at the number more deeply, 97.8% of its customers are located in two metropolitan areas of New Jersey.
What is the verdict?
At present, Clover Health trades about eight times the revenue, which is quite expensive compared to traditional giants in health insurance. However, its stock is much cheaper than telemedicine leaders Teladoc Health and GoodRx. Given its outstanding growth in revenue, I would argue that Clover Health is less like an insurer and more of a data-driven stake in health technology.
But not everyone believes in its potential. The short-selling firm Hindenburg Research on Thursday published a report alleging that Clover Health did not release a civil investigation by the Department of Justice to determine if it had improperly caused the referrals to patients paid by federal agencies. . The report also points to discounts higher than the average price Clover Health pays its doctors to use the software and highlights poor industry reviews to justify its short position.
Although it may seem rather damning, nothing has been proven yet. Hindenburg did not deny that Clover experienced sincere growth in membership. In addition, some of the practices mentioned in the Hindenburg report are, according to their own, systematic for the entire Medicare Advantage sector and not just applicable to Clover Health.
More than 10,000 Americans join Medicare every day. About 36% of them sign up for a Medicare Advantage program. The number could rise to 70% by 2040. In the next five years, the total expense of Medicare is likely to be $ 1 trillion, so there is definitely a huge demand for services like those of Clover Health.
Overall, I believe Clover Health is a hidden gem, and many investors have yet to discover its potential. It will not be surprising if the company becomes one of the biggest players in the Medicare Advantage market with its new capital on hand in the next decade. If you have a believer in Clover Health’s technology and the kind of time horizon that drives your boat, then give its shares a try. Look differently at these excellent health supplies.