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What You Need To Know About the One Medical IPO

Alphabet-backed One Medical is going public, should you make an appointment?

Technology-powered healthcare clinic, One Medical, filed to go public on Friday on the Nasdaq Global Select Market under the ticker ONEM.

Founded in 2007 by Harvard-trained internist Thomas Lee, MD, the Alphabet-backed company provides primary medical care at clinics in nine metropolitan markets across the country: Boston, Chicago, Los Angeles, New York, Phoenix, San Diego, the San Francisco Bay Area, Seattle and Washington, DC. Dr. Lee, now head of Galileo Health, was succeeded as CEO in 2017 by Amir Rubin, formerly a group executive at UnitedHealth Group and CEO of Stanford Health Care.

“The vision and the focus is to delight millions,” Rubin told CNBC. “In health care, almost every stakeholder group is frustrated and so we looked to solve a lot of these needs simultaneously by starting from scratch and putting the member at the center of the experience.”

One Medical (incorporated as 1LifeHealthcare, Inc.) is valued at well-over $1 billion with over $500 million in venture capital funding from the likes of the Carlyle Group (owning 26.8% of the company), J.P. Morgan and the aforementioned Alphabet G.V. (formerly Google Ventures). Google is also a customer (10% of One Medical’s revenue) and uses One Medical at its corporate offices.

In the prospectus, One Medical states they have 397,000 members and 6,000 enterprise clients. The company mission is to make a better healthcare model for the 81% of consumers who are dissatisfied with their healthcare. One Medical makes money through customer memberships (either by direct enrollment or employer sponsorship), which cost $200 a year, and by providing services to companies. These services include digital scheduling, virtual consults, and comfortable office visits in any of its 77 medical offices. One Medical caters to a more luxurious or premium doctor experience, based on company write-ups in CNBC and Rubin’s own interviews.

One primary concern from the prospectus is the revenue concentration. From the S-1:

In 2017, 2018 and the nine months ended September 30, 2019, our top customers accounted for 42%, 37% and 36% of our net revenue, respectively. These customers included Google Inc., which accounted for 10% of our net revenue for 2018 and the nine months ended September 30, 2019. In 2017, our top customers consisted of several commercial payers, and for the nine months ended September 30, 2019, our top customers also included a commercial payer and a health network partner.

Of course, healthcare is one sector where streamlined services and a more friendly consumer-facing experience would be welcome, but it is unclear if Wall Street has the stomach for more flashy technology companies with mounting losses after the infamous WeWork fiasco.

From 2017 to 2018, One Medical losses were $31.7 million and $44.4 million, respectively. For the first nine months of 2019, the company’s net loss was $34.2 million. For the same period, the company reported net revenues of $198.9 million, equaling a 29% increase from the same period last year. This increase comes from membership totals that went from 323,000 to 397,000 people. But it appears adding these 74,000 people came at the cost of doubling the marketing budget as it went from $14.4 million in 2018 to $28.8 million 2019. That’s a stiff—and likely unsustainable—cost of customer acquisition.

One Medical does give the boilerplate warning in its S-1 that it might never be profitable, but with mounting competition in the space, investors might heed this warning with particular interest and give this primary care startup a seat in the waiting room.


Equities Contributor: Stephen L. Kanaval

Source: Equities News

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