Medical technology as an industry, particularly the telehealth space, has gained a lot of momentum over the past few months in the Covid-19 pandemic environment.
While some med-tech companies seeing their stock prices rise from the crisis are diagnostics-focused and have some link to the Covid-19 testing process, telehealth is another sector that is booming with the increasing desire of consumers to access medical healthcare through digital platforms.
Telehealth companies like Livongo Health Inc (LVGO, Financial) have benefitted immensely from this changing mindset and have seen phenomenal results along with a huge jumps in stock prices. Given the kind of momentum that the company has gathered, it looks set to go further up to a new high, in my estimation.
Company overview
Livongo Health is a renowned telehealth player providing an integrated suite of solutions for the healthcare industry in North America. Through its solutions, the company looks to use artificial intelligence and data science to provide insights and promote health behavior change. Livongo’s platform uses cellular-connected devices to supply informed coaching and data science-enabled insights to its subscribers and facilitates their access to medications. Its products cater to a variety of illnesses such as diabetes, hypertension, prediabetes and weight management and behavioral health. Its main client base includes corporate employers, health plans, government entities and labor unions. The company has a workforce of close to 615 people and has its headquarters in Mountain View, California.
Recent financial results
Livongo Health has consistently been delivering strong quarterly results, beating analyst estimates in terms of revenue as well as earnings for the past four quarters.
In its most recent result for the quarter ended March 2020, the company reported revenue of $68.82 million, well above the analyst consensus estimate of $64.86 million. This growth has largely been driven by the increased inclination of consumers and companies towards telehealth providers. It reported earnings per share (EPS) of 3 cents, well above the analyst expectation of a loss per share of 4 cents.
Recently, the management revised its guidance for the second quarter of 2020, which sent the stock soaring. The management had earlier reported expected revenue of $73 million to $75 million for Q2 2020, which has now been significantly increased to a range of $86 million to $87 million. This would include close to $3 million in non-recurring revenues and the rest in ongoing subscription revenue, which is a big boost for the company. The product demand has gained exceptional momentum as some of the largest employers in the U.S. are continuing to select Livongo Health’s services. The management is gradually increasing its investments in artificial intelligence and data science capabilities, which are expected to pay off with better enrollment and member retention.
Solid macro for diabetes
Livongo Health’s biggest focus is on patients suffering from diabetes. It is estimated that about 34 million people in the U.S. have diabetes, with another 88 million exhibiting signs of prediabetes. About a fourth of these diabetes patients have not even been diagnosed yet. The market potential for diabetes is huge, and the best way to counter the disease is to undertake proper dietary changes.
Livongo’s management values the diabetes addressable market at $28.2 billion and the hypertension addressable market at $18.5 billion, implying a $46.7 billion opportunity for the company. Its offerings attack diabetes by attempting to alter the behavioral habits of diabetics to ensure they take better care of themselves. Its products help diabetics stay on top of their blood glucose levels more often and help them have positive outcomes. The number of total people using Livongo's services has increased by five times in the past two years with a solid increase in the number of enterprise clients. Given the untapped market potential surrounding diabetes along with hypertension and obesity, it appears to be a matter of time before Livongo Health reports a positive bottom-line in its annual result.
Key takeaways
Livongo Health has nearly quadrupled from its lows around October 2019, and with good reason. The company created a whole new paradigm in the world of healthcare by using artificial intelligence and data science to provide personalized recommendations to its subscribers. It has helped consumers move from age-old tests to wireless glucometers and pedometers to track glucose levels and physical activity round the clock. Also, the nature of the company’s technology and its level of innovation is improving with every passing quarter. This is what is driving both individuals as well as corporate customers towards the company.
Despite the fact that it faces competition from players like Teladoc (TDOC, Financial) and Ontrak (OTRK, Financial) , I think Livongo has created a strong niche for itself to differentiate its services from competitors.
Disclosure: No positions.
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