On January 7, the special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings III completed its $ 3.7 billion merger with Clover Health Investments (NASDAQ: CLOV). The deal was exactly what the latter needed, as his liabilities outnumber his assets by about $ 488 million and he has been bleeding money for some time. Clover Health, however, is anything but an underdog in the health sector. The company also has the support of Alphabet, in the form of a $ 130 million venture capital injection to pursue its goals of disrupting the medical insurance industry.
While plentiful, this investment exceeds the $ 1.2 billion in cash that Clover Health received in the acquisition, including $ 400 million from Chamath Palihapitiya, the founder of Capital Social. Recently, Palihapitiya once again took the investment world by storm by allying itself with traders on the now legendary subreddit WallStreetBets in their battle for control of GameStop stock on short sellers. As a result, many Reddit investors have taken a keen interest in the venture capitalist’s company. Can Clover Health enrich investors before 2030?
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Not just your daily medical insurer
On behalf of the federal government, Clover Health offers Medicare Advantage plans for seniors over 65 and people with qualifying disabilities. He prides himself on having the lowest direct costs in the country for copayments from doctors, specialists and prescription drugs. Those who apply realize an average saving in living costs of 17% when switching from similar programs.
The secret ingredient behind these savings is the company’s proprietary Clover Assistant platforms, which provide real-time, data-based treatment recommendations to physicians. It offers solutions for office visits, teleconsultations, home visits and administrative teams. Clover Assistant can reduce the insurer’s premium payment by approximately 12% compared to a plan without this technology.
In addition, the Clover Health platform has a net promoter score (NPS) of 59. NPS, a measure of a customer’s willingness to recommend a company’s services, has a scale that ranges from 100 to 100 negatives. The company’s rating is excellent in the context of NPS of legacy medical record software vendors of 44 negatives, on average.
For these reasons, it should come as no surprise that Clover Health has seen tremendous membership growth. Between January 2018 and September 2020, the company’s patient count increased from 30,677 to 57,503. Each member adds approximately $ 10,000 in annual revenue. There are now more than 2,300 doctors serving 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 was $ 10 million, compared to an impressive net loss of $ 367.3 million in 2019.
The substantial improvement in its efficiency is mainly attributed to the COVID-19 pandemic. Hospitals and patients have started to postpone elective procedures, drastically reducing the amount of premium health insurers pay beneficiaries. In fact, Clover Health’s proportion of medical care dropped to 82% from 98.2% last year.
Despite the good performance, the company is still in the initial stages of expansion. At the moment, he has not issued patents protecting the Clover Assistant software. It has an impressive 8% market share, but this applies only to 34 counties in seven states. Analyzing this figure in more detail, 97.8% of its customers are located in two metropolitan areas in New Jersey.
What is the verdict?
At the moment, Clover Health is being traded for about eight times revenue, which is quite expensive compared to traditional health insurance giants. However, their stock is much less expensive than telemedicine leaders Teladoc Health and GoodRx. Given its excellent revenue growth, I would say that Clover Health is less like an insurance company and more like a stock of data-driven health technology.
But not everyone believes in its potential. On Thursday, short-selling company Hindenburg Research published a report alleging that Clover Health did not release a civilian Department of Justice investigation to determine whether it had misappropriated the referral of paid patients by federal agencies. The report also pointed out higher-than-average discounts Clover Health pays its doctors for using its software and highlighted bad company reviews to justify its short position.
Although this may seem quite harmful, nothing has been proven yet. Hindenburg did not deny that Clover was experiencing a genuine increase in members. In addition, some of the practices mentioned in the Hindenburg report are, as they themselves admit, systemic across the Medicare Advantage industry and not just applicable to Clover Health.
More than 10,000 Americans join Medicare every day. Approximately 36% of them enroll in a Medicare Advantage program. That number could increase to 70% by 2040. In the next five years, total Medicare spending is likely to reach $ 1 trillion, so there is definitely a huge market demand for services like those provided by Clover Health.
Overall, I believe Clover Health is a hidden gem and many investors have yet to discover its potential. It would not be surprising if the company became one of the biggest players in the Medicare Advantage market in the next decade with its new capital in hand. If you believe in Clover Health technology and that kind of time horizon makes your boat float, try your actions. Otherwise, take a look at these large stocks of health.