- Doximity went public in June 2021, raising approximately $606 million in gross proceeds in a U.S. IPO.
- The firm operates a digital collaboration and communication platform for physicians in the United States.
- Doximity has grown revenue and produces impressive free cash flow and earnings.
- But Doximity's shares may be fully valued at their current level, so I'm Neutral on DOCS in the near term.
A Quick Take On Doximity
Doximity, Inc. ( DOCS ) went public in June 2021, raising approximately $606 million in gross proceeds to the company and a selling shareholder from an IPO that priced at $26.00 per share.
The firm operates a digital platform for medical professionals in the U.S., providing them with collaboration tools, telehealth solutions and related capabilities.
Doximity appears well-positioned for a "new normal" of hybrid work environment for physicians, but I'm not convinced the shares are a good value here.
I'm on Hold for DOCS in the near-term.
Doximity Overview
San Francisco, California-based Doximity was founded to help physicians to be more productive by providing them with information and tools for their practice.
Management is headed by co-founder and CEO Jeffrey Tangney, who was previously co-founder of Epocrates, a mobile medical reference app company.
The company's primary offerings include:
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Physician Communication Network
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Marketing Solution
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Hiring Solution
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Telehealth Solution
- Doximity/Enterprise Dialer
The firm pursues a "land and expand" strategy to grow its business with each physician practice and health system.
DOCS launched its Telehealth Solution in 2020 and said it delivered more than 63 million telehealth visits in FYE 2021.
Doximity's Market & Competition
According to a 2022 market research report by Grand View Research, the market for telehealth solutions and services was an estimated $62.4 billion in 2021 and is forecast to reach $551 billion by 2028.
This represents a forecast CAGR of a very high 36.5% from 2022 to 2028.
The main drivers for this expected growth are a growing penetration of internet broadband and increasing adoption by healthcare providers in the use of telehealth solutions for certain aspects of their service delivery options.
Also, below is a chart showing the historical and projected future growth trajectory of the U.S. telehealth market:
U.S. Telehealth Market (Grand View Research)
Major competitive or other industry participants include:
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Teladoc
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PointClickClare Technologies
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Doctor Anywhere
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Cerner
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American Well
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Doctor on Demand
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GlobalMed
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MDLive
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Others
Doximity's Recent Financial Performance
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Total revenue by quarter has grown but more recently dropped somewhat:
5 Quarter Total Revenue (Seeking Alpha)
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Gross profit by quarter has followed a similar trajectory to that of total revenue:
5 Quarter Gross Profit (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter have been creeping up in recent quarters:
5 Quarter SG&A % Of Revenue (Seeking Alpha)
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Operating income by quarter has dropped materially in the past two quarters:
5 Quarter Operating Income (Seeking Alpha)
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Earnings per share (Diluted) have also dropped in line with operating income:
5 Quarter Earnings Per Share (Seeking Alpha)
(All data in above charts is GAAP)
In the past 12 months, DOCS' stock price has fallen 22.7% vs. the U.S. S&P 500 index' drop of around 4.7%, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Valuation And Other Metrics For Doximity
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value | $6,960,000,000 |
Market Capitalization | $7,730,000,000 |
Enterprise Value / Sales | 19.26 |
Revenue Growth Rate | 48.7% |
Operating Cash Flow | $138,150,000 |
Earnings Per Share (Fully Diluted) | $0.68 |
Net Income Margin | 41.7% |
(Source - Seeking Alpha)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm's projected growth and earnings:
DOCS DCF (GuruFocus)
Assuming generous DCF parameters, the firm's shares would be valued at approximately $33.45 versus the current price of $41.21, indicating they are potentially currently overvalued, with the given earnings, growth and discount rate assumptions of the DCF.
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
DOCS' most recent GAAP Rule of 40 calculation was 80% as of FQ1 2022, so the firm has performed quite well in this regard, per the table below:
Rule of 40 - GAAP | Calculation |
Recent Rev. Growth % | 49% |
GAAP EBITDA % | 31% |
Total | 80% |
(Source - Seeking Alpha)
Commentary On Doximity
In its last earnings call (Source - Seeking Alpha ), covering FQ1 2023's results, management highlighted beating its revenue and EBITDA guidance along with record high physician engagement.
However, management also said its upsell rate for its pharmaceuticals clients slowed due to greater discretion by clients that can result in budget reductions.
In response, CEO Jeff Tangney said he is shifting his focus from the firm's EHR integration efforts to its pharmaceutical products and partnerships, as he views the pharma market downshift as temporary in nature.
The firm believes that its platform is well-positioned for the new 'hybrid' work model, which applies to physicians as their follow-up with patients can be from their office or home, so is increasingly virtual.
Interestingly, new board member Phoebe Yang is General Manager of Amazon Web Services, Healthcare. Amazon (AMZN) has recently announced that it will acquire One Medical, a primary care organization, and appears to be making moves to enter the healthcare space from various angles.
So, there is now an unmistakable 'link' between Doximity and Amazon at the Board of Directors level.
As to its financial results, revenue for the quarter rose by 25%, above the range and net revenue retention rate was an impressive 139%. Net revenue retention is a very important metric for SaaS companies; A net retention rate above 100% indicates negative net churn, so the firm is performing well in this regard.
However, operating income has dropped materially, while SG&A as a percent of revenue has risen, although some of that rise may be additional first fiscal quarter compensation payouts.
For the balance sheet , the firm finished the quarter with $776 million in cash, equivalents and marketable securities, generating free cash flow of $42.6 million, an impressive result.
Looking ahead, management reduced its Fiscal 2023 annual revenue and EBITDA guidance by 6%, equating to 25% expected revenue growth and a 43% EBITDA margin.
Regarding valuation, the market is currently valuing DOCS at an EV/Revenue multiple of 19.3x.
The SaaS Capital Index of publicly held SaaS software companies showed an average forward EV/Revenue multiple of around 7.5x at June 30, 2022, as the chart shows here:
SaaS Capital Index (SaaS Capital)
So, with an EV/Sales of 19.3x by comparison, DOCS is currently valued by the market at a significant premium to the SaaS Capital Index, at least as of June 30, 2022.
The primary risk to the company's outlook is a continued return to a more office-based work environment, reducing the need for its remote service offerings.
A potential upside catalyst to the stock could include a reduction in the rise of cost of capital, resulting in a higher multiple assigned to the firm's earnings.
DOCS presents a conundrum in an uncertain economic environment. The company's shares appear fully priced on a discounted cash flow basis, yet the firm is producing strong metrics in most areas of its performance.
Doximity appears well-positioned for a 'new normal' of hybrid work environment for physicians, but I'm not convinced the shares are a good value here.
I'm on Hold for DOCS in the near-term.
For further details see:
Doximity Appears Well-Positioned But Shares May Be Fully Valued Here