Disruptive Healthcare 4/12/2024: Peers Since the Peak 2/15/2025
Disruptive healthcare valuation, trends and analysis weekly.
Another Tough Week For Disruptive HC Comps
The last two weeks have been tough for healthcare stocks broadly, and for our peer group specifically as you can see below.
I wanted to go back and see exactly when the decline in our peer group began. I found that our disruptive health peer group peaked as an index on 2/15/2024. Since then, the group has drastically underperformed the broader market as well as the XLV. As interest rates continue to rise due to a believe that the fed will keep rates where they are for longer, the longer dated cash flows of our peer group continue to take a haircut in the mind of investors.
Here’s how the public stocks in our space have traded over the last 12 months:
Here is our weekly chart showing how the peers have performed since the group bottomed on November 9th, 2023. Since that time, they had outperformed the broader market until the last two weeks. Since early April, the peer group has begun to underperform versus the broader market.
Disruptive Healthcare Public Comps:
The impact of the declining stock prices in the healthcare space are clearly seen in our comps. Our Disruptive Healthcare peer group traded down from 3.3x to 3.2x on a 2024E revenue basis last week.
Top Revenue Multiples:
This top 4 group is a subset of the broader disruptive healthcare peer set. These 4 currently have the largest EV / 2024 Revenue multiple. This group trades at 7.0x 2024E revenue versus the broader group at 3.2x. This group also boasts an average EBITDA margin of 39.2% on 2024E projections versus the broader group at 17.6% 2024E EBITDA margin on average.
Weekly Share Price Performance:
This week was another tough week for our peer group. The comps traded down 3.6% on average versus the S&P 500 which traded down 1.6%.
Valuation — EV / NTM Revenue:
Mature healthcare comps are generally valued based on their earnings (see the broader comps at the bottom of this post). However, earlier stage businesses such as startups, and to an extent these younger, disruptive healthcare public companies often don’t have positive earnings yet or they may have positive earnings, but they haven’t reached the margin profile they will achieve upon maturity as a business. As a result, it’s harder to compare these companies on an apples-to-apples basis using EV to earnings. So, we use EV/NTM revenue to triangulate valuation for these companies and for startups in similar markets.
Summary of EV / NTM Revenue Valuation Stats:
5 Year Average: 6.8x
Today: 3.0x
Peak: 15.1x
Trough: 2.4x
Top 4 companies include VEEV, HQY, DOCS and GDRX as of today. Why did we move from showing the top 5 to the top 4 here? We removed PHR because their margin profile doesn’t fit with the rest of the “top” group. They were a significant outlier and I think it is important to show the disparity between the true high margin businesses and everyone else.
Summary of top 4 EV / NTM Revenue Valuation Stats:
5 Year Average: 12.5x
Today: 7.1x
Peak: 26.4x
Trough: 5.8x
Valuation — EV / NTM EBITDA:
We were previously only looking at 8 companies from the perspective of EV/NTM EBITDA, but since Q1 earnings have reported, more analysts are projecting positive EBITDA in 2024 and beyond for more of the peers so we have expanded the index here to include 11 of the 16 companies.
To create an index, I only include the peers who have a substantial believable positive NTM EBITDA forecast based on the average of Wall Street equity research reports. The comps with barely positive EBITDA yield EBITDA multiples that aren’t realistic (so we consider them not meaningful “NM”).
The included companies are: VEEV, HQY, DOCS, RCM, PGNY, TDOC, GDRX, GOCO, HIMS, LFST, and PRVA. That’s not to say the other Companies won’t have positive EBITDA in 2024, but the multiples are relevant right now. Here’s how the chart looks.
Summary EV / NTM EBITDA Valuation Stats:
5 Year Average: 39.7x
Today: 17.0x
Peak: 85.0x
Trough: 15.3x
As these companies mature and begin to trade on EBITDA multiples or even P/E multiples (much like the hospital facilities and MCO peers) then this chart will tell us more. This is certainly a data point we can look at for profitable growth equity stage private companies. I’d expect those companies to be valued closer to the 5-year average or slightly lower. Some of that data in 2019 and 2020 is elevated because the EBITDA estimates back then were very small or barely positive for some of these companies driving an artificially high multiple that wasn’t driving valuation but rather was a dependent variable.
Broader Healthcare Comps as of 4/12/2024:
This newsletter is mostly focused on the disruptive healthcare comps and how their performance drives valuation for our private market portfolio at What If Ventures. However, we do keep a much broader set of comps that includes Healthcare Facilities and Managed Care Organizations. I know the font is small, but you should be able to click on these and expand.
^I realize this is too small to read, but if you double click on the image it should expand. Or you can just email me and I’ll send you the backup.
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About What If Ventures — What If Ventures invests in mental health and digital health startups from seed stage to growth equity. To date, we have invested over $83mm into 72 healthcare startups since January 2020.
If you have questions about any of this analysis or want to collaborate with What If Ventures, please reach out via info@whatif.vc. We’d love to connect with entrepreneurs and investors in the space.
You can follow more of my commentary on twitter here: @hazesyah