Amwell (Nasdaq: AMWL), formally known as American Well, is one of the leading telehealth platforms in the U.S. and recent went public. Due to the coronavirus, it's experienced extraordinary growth. In the last quarter, it facilitated 45,000 appointments per day which were a huge increase from 2,000 per day in the previous year.
Like recent IPOs with big potential markets and fast growth, it opened above its expected price. It was priced to open at $18 but actually opened at $25.50 which meant the company raised $747 million and has a valuation of $5 billion. Google (Nasdaq: GOOG) is an investor in the company and owns 3% of shares.
Coronavirus Catalyst
The coronavirus has disrupted nearly every part of the economy. For healthcare, it led to fewer procedures and appointments due to concerns on both sides of infection. It's also led to an explosion in telehealth.
Just like the coronavirus forced a shutdown of physical retail and likely led to an acceleration and permanent increase in market share for e-commerce, the same is happening for telehealth. This was also reflected in the performance of stocks like Teladoc (Nasdaq: TDOC) and 1life Healthcare (Nasdaq: ONEM) which have been among the best-performing stocks of 2020.
One of the biggest problems in the US is the rising cost of healthcare. And, telehealth is one part of the solution as it enables doctors to see more patients. It also lets doctors provide healthcare and stay in touch with patients on a more regular basis rather than with irregular appointments. For patients, it's much more convenient and for certain illnesses, they don't need to see a doctor in person. Many believe the future of healthcare is a closer relationship with more regular contact between doctors and patients with regular, virtual visits and in-person visits only when necessary.
AmWell' Potential
Amwell is onboarding doctors and patients on its platform. Currently, it's working with 150 health systems, 55 health plans, and has contracts with corporations as well. In its last quarter, it earned $68 million in revenue which was nearly a 100% increase from the previous year. It also lost $87 million in the quarter as the company focuses on growth.
Amwell is at the intersection of a couple of bullish trends. Healthcare spending continues to increase due to the aging population and nearly 5% inflation in healthcare costs. There's a doctor shortage looming since 1/3 of doctors are older than 50. Additionally, the number of graduating doctors hasn't significantly increased despite the growing population. And, another trend is the rise in telehealth as a means of delivering healthcare. According to surveys, 76% of patients and doctors say they will continue using telehealth after the pandemic. And, many estimate that about 15% of healthcare spending can shift to telehealth which means that it has a total potential market of $250 billion annually.
While telehealth clearly has a bright future, there are a number of telehealth companies, and it's uncertain if Amwell will be one of the winners. Recent history has taught us that with these platform-type businesses that there will only be a few winners. However, Amwell has a head start, a decent amount of cash due to going public, and backing by Google which will help it maintain its growth trajectory.
Once, it reaches scale, it should be a high-margin business with a sizeable moat. Once, a doctor is on the platform, has patients' records on it and the insurance information is connected, they will be unlikely to switch. There will also be many opportunities for value-added services that they can offer both doctors and patients.