CLOV Action: CTO Medicare Disruption Goal Fuels Clover Growth
When Clover Health Investments (NASDAQ:CLOV) first became public, all attention was focused on its sponsor, Chamath Palihapitiya. The CLOV share was just the latest in a series of its initial public offerings with a blank check.
I was among those who piled up. I called him the PSPC Great Gatsby, the real Professor Harold Hill.
But now that CLOV shares have been on the market for some time, attention should turn to CTO Andrew Toy and the Clover wizard. It’s what the company has always been about, using technology to lower primary care costs for people with Medicare.
Clover Assistant is a clinical support platform built within a managed care business.
Toy’s theory is this: Three-quarters of health care costs come from managing chronic conditions like diabetes and high blood pressure. This is especially true for people over 65. If actionable data is in the payment system, primary care physicians will focus on it. This will align incentives between those who pay the bills and those who accumulate them.
Toy, from Hong Kong who sold his first start-up to Alphabet (NASDAQ:GOOGL), sees Clover Assistant as a bridge between patients and their doctors. At the height of the pandemic, he says, Clover Assistant has helped policyholders stay at home through telehealth and post office pharmacies. Then it helped them access vaccines. Clover created a Video on wheels program to get iPads from patients for these virtual tours.
The best thing the government can do to reduce health care costs, Toy now believes, is to provide inexpensive broadband service to everybody.
A difficult start for CLOV Stock
It was designed to capture data and experience, which Clover has used to offer Medicare Advantage plans in nine states. The 2022 registration period ends December 7th. The assistant is integrated into these plans, which do not include a co-payment for primary care visits. The idea is that doctors can optimize care, thanks to the assistant, because patients use it to stay in touch with the healthcare system.
Medicare Advantage providers focus on selling patients through advertising. This year, the clover takes another route to the market, contract directly with home health care providers. If the Clover model cuts costs and improves results, the entire medicare market is open to it.
Clover figures emerge
Clover is just starting to generate significant revenue, worth around $ 1.5 billion in 2021. Analysts expect this to climb to $ 2.64 billion next year. This makes the market cap of $ 2.4 billion reasonable.
Remember, this is a health insurance stock, not a technology stock. UnitedHealth Group (NYSE:A H), the most successful American health insurer, reports less than 6% of its turnover to its net income.
While part of Clover’s talk is focused on cutting costs, the goal of cutting costs is to create margins. But if Clover could match UNH’s profitability next year, that $ 2.64 billion in revenue could generate nearly $ 160 million in net income. If you buy the CTO Toy argument, in other words, you only pay 15 times next year’s profit for the stock now.
The bottom line
Clover’s past as a SPAC stock and as a a stock of meme, will likely keep its price low for some time. Since the stock debuted January 8, the price has fallen by almost two-thirds. I doubt it will turn around until there’s proof of Toy’s case.
But I love what Andrew Toy does. This fits well with my own reporting from the 2000s, when I ran a computer health beat at ZDNet. Don’t tell Chamath I said this, but Clover Health is now an intriguing speculation.
As of the publication date, Dana Blankenhorn does not hold any positions in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Dana blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays, he a collection of COVID-19 stories in the Amazon Kindle Store. Write to him at [email protected] or tweet it at @danablankenhorn. He writes a Substack newsletter, Facing the future, which covers technology, markets and politics.