Could a small health insurance company look like a space flight company? The founder of Social Capital’s CEO, Chamath Palihapitiya, thinks so. In that Motley Fool Live video recorded on November 16, 2020, Bill Mann, director of small cap research at The Motley Fool, talks to Palihapitiya about why he thinks Clover Health (NASDAQ: CLOV) It is like galactic virgin (NYSE: SPCE).
Bill Mann: Even so, the market on the day you announced the Clover Health business lowered the IPOC price to, I suppose, at least, you will not lose money. What is there about this big problem that you think the market lacks?
Chamath Palihapitiya: Well, the good analogy is Virgin in many ways. The market adjustment of Virgin’s product was also not well understood in the early stages and they fell afterwards, I think about eight dollars or seven.
Bill Mann: Yes, space flights for the wealthy didn’t catch people.
Chamath Palihapitiya: I think we live in a world that the media cycle, when I joined CNBC and said, “Download the app at home.” It fit in the box of what people wanted to hear. People were able to really embrace that.
When people initially heard space flights, point-to-point travel and hybrid rocket engines, they thought, “What are you talking about?” Instead, what they did was to superimpose space flights for wealthy people. But over time, as people took the trouble to understand the business, I heard from Vivek, Andrew and me, as they heard from George Bitesize at the time and from me, they discovered the truth and understood what I saw.
The product fit the market, it was the beginning of scale and an economic model that I found really exceptional, and they were willing to follow that path. Likewise, I think what they are showing here is that we set a very fair price. Not too hot or too cold, using the Goldilocks analogy. I think it was right in the middle, and we are negotiating right in the middle.
There is nothing wrong with that. Vivek got a good fair price, and I think what you will see over time is that we also got a very fair price. Again, there are many options built into this business. The market is huge and growing. The incentives are huge and are growing.
These guys are really the only ones who discovered that using their language is a sin, and that sin is creating a very obvious dilemma for the innovator. It will be impossible for United and Wellspring incenting to decide, to reorient an entire economic model towards lower costs and better results, because they are offset by higher costs and health inflation. Not because they can’t do that.