💎I like this Health-Tech stock
The 'Linkedin for Doctors'
I keep thinking about Doximity ($DOCS).
In today’s episode, I’ll briefly walk you through:
💡 Doximity’s Business Model, Industry & Competition
📊 Doximity’s Quality Metrics
💰 Doximity’s 5-year Outlook & Price Targets
Is this a healthy idea? Let’s find this out.
Understanding the Business
What do they do and how do they make money?
Doximity is a leading go-to platform for US medical professionals.
I was positively surprised when I read that more than 80% of US physicians are verified members of the ‘Linkedin-for-doctors’.
In essence, the company offers a variety of services within its app, including telemedicine services, marketing and hiring solutions for pharmaceutical companies and hospitals.
And, just like Linkedin, it’s a professional network offering secure messaging, telehealth, and physician directory services.
In short:
Doctors use the platform to upload documents and run smooth operations;
Physicians find their employers, employers find new hires;
Hospitals find the best products and services, advertized on the platform;
Patients get virtual assistance, while hospitals get an immediate virtual care solution.
Similar to other platform business models, they make money through multiple business segments:
Advertising & Marketing Solutions (more than 80% of total revenues): the platform monetizes targeted advertising solutions to pharmaceutical companies, hospitals, and healthcare systems. Through precise targeting, they allow advertisers to reach specific segments of the medical community, making it a valuable marketing tool;
Telemedicine: Doximity’s core product Dialer allows doctors to conduct virtual appointments with patients directly through their smartphones. Hospitals and healthcare systems pay to use the telehealth platform as part of their virtual care services. Healthcare institutions pay for premium features of Doximity Dialer, which I report below from their investor relations page;
Hiring Solutions: Hospitals and healthcare institutions use Doximity to recruit top-tier medical talent. Doximity’s database gives recruiters direct access to a large pool of qualified physicians, a crucial aspect for filling positions in a high-demand field.
To give you an idea, here’s some key business KPIs:
95% of revenues are subscription based (recurring)
114% net revenue retention rate
2M active members
26.6% 3-year Revenue Growth (CAGR)
Marketing Solutions growing at 19% in 2024 vs 2023, while hiring solutions show negative growth.
Industry & Competition
Revenue Mix: seeking diversification?
I like how Doximity is positioned in terms of core industries.
The most conservative outlook in terms of telemedicine (by Fortune Business Insights) industry growth sees an expected 17.1% Market CAGR in the period 2024 - 2030. This looks pretty solid.
Truth be told, telemedicine remains only one of the multiple business segments of Doximity (accounting now for less than 15% of total revenues).
According to the company’s Management, the TAM (total addressable market) across the 3 main business lines (advertising, staffing, and telemedicine) hits $18.5 billion in revenue potential.
My 2-cents on the segments
Considering the wide adoption of the app within US doctors and the overall sectorial tailwinds, I am closely monitor the performance of telemedicine with the hope to witness significant growth rates.
Capturing even a 5% of this industry TAM would bring roughly additional $200M in sales. Can they do it? Only time will tell.
With the placement segment exhibiting negative growth, it becomes crucial to work on revenue diversification and segments expansion to get the ultimate Wall Street attention.
How about competition?
Doximity faces competition from both healthcare professional networks and telemedicine providers:
LinkedIn: this does not need an introduction. LinkedIn is not healthcare-specific, yet it still serves as a general networking platform where healthcare professionals can engage in career development and networking
Sermo: a social networking platform specifically for physicians, which allows for anonymous discussions on medical cases, polls, and professional networking
Teladoc: primarily focused on direct-to-consumer telehealth services, Teladoc is a rising major player in virtual care and telemedicine
Amwell: another large telehealth company providing telemedicine solutions to healthcare systems, employers, and individuals
MDLive: similar to Teladoc and Amwell, MDLive provides virtual care services, focusing on direct consultations between patients and healthcare professionals
UpToDate and Medscape: while these are more focused on clinical information and research, they serve the same target audience of physicians and healthcare professionals
My 2-cents on competition
With regard to the network itself, I consider the presence of Microsoft a massive risk for the company.
However, the adoption and related network effects driven by the app seem to hold quite nicely over time.
Regarding telehealth, I am not too concerned as this seems a rising sector with space for multiple winners.
Seeking Quality
In previous articles, I stressed how I’m used to searching for excellence indicators, both on a qualitative and on a quantitative level. Here’s a summary for DOCS:
Qualitative
Leading indicators (check this article when I introduced the metrics in detail!):
✅ Founder-led Company. Jeff Tangney co-founder the company back in 2010.
✅ Owner-operated Company. Tangney still owns 27% of shares.
✅ Product Quality. We don’t have NPS data, but a solid 114% Net Revenue Retention Rate (a better metric for B2B businesses)
❌ No Brand Value information.
✅ 1/3 of employees in R&D, equals to 17-18% of R&D to Revenue.
❌ No M&A track record
Quantitative
What metrics shall we monitor for a $8B market cap digital company?
Beyond everything, these are important KPIs to monitor according to my experience - in short:
6.3% Goodwill / Total Assets (intangibles under control)
0% Shares Outstanding 3-year CAGR (dilution under control)
105% Free Cash Flow / Income
6.7 Current Ratio
38% Operating Margin
48% ROIC
Almost Zero long-term debt
Financials look quite strong. It’s not a surprise for me since I found the stock through a financial screening selection.
That being said, is DOCS an attractive stock? Let’s find it out with my top-down stock predictor.
5-year Price Targets
This is my top-down stock predictor.
I explained how I intend to use valuation in this first article, but let’s refresh a few rules of this game:
Valuation itself means nothing and I never buy or sell based on a bunch of numbers
I use this method as: a) a time saver that quickly tells me whether a stock is attractive or not, and b) after I’m done with business fundamentals to finally test the most reasonable risk-reward profile
I define it as ‘top-down’ because further work needs to be done (bottom-up approach) to validate or change these numbers
Visualizing this as 5-year chart projections, the stock seems to be protected on the downside, even after the recent rally from $25 to over $42.
[Source: Business Invest analysis & tools]
Comments on the input data:
I put 17% as best-case revenue growth for the next 5-year, to top the telemedicine industry trend;
38% end profit margin seems reasonable considering how SG&A have been declining over time as % of sales;
End-multiples of 18/23/28 reflect a company approaching maturity, which may be seen as conservative in light of the secular opportunities ahead for DOCS;
I assumed shares dilutions will be offset by buybacks, in line with recent developments.
Let’s see if these numbers hold, by double-checking with a basic reverse DCF!
The 100% Recipe
How much should DOCS grow in revenues to double in market valuation from now?
Let’s answer with a simplified Reverse DCF:
How to read this table:
Current Price column: at current valuations, DOCS would need to achieve annual 29% annual growth rate in revenues to justify a +100% upside from now;
-20% column: if the stock price dropped by 20% from the current price, the growth rate needed to justify a +100% would become +23%;
-30% column: if the stock price dropped by 30% from the current price, the growth rate needed to justify a +100% would go down to +20%, which sounds more reasonable.
Conclusion: I’m not interested at these valuations, but I will be happily welcoming a -20/30% pullback.
Let’s connect!
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Let me know if you own or are researching DOCS.
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Thank you again for your valuable time.
Happy Investing,
Francesco - Business Invest