Ehealth Review: e-insurance online platform

Ehealth Review: e-insurance online platform

eHealth IncEHTH11,91 $

Ehealth (NASDAQ: EHTH) — company, providing services for the selection of information about e-insurance on its online platform. As a matter of fact, this broker, who takes a commission for the purchase of an insurance policy on its site. In its turn, it helps individuals and small businesses to quickly and conveniently choose insurance for all the necessary parameters. Previously, the buying process was confusing and opaque, but Ehealth has greatly simplified it.

About company

The company, headquartered in Santa Clara, California, was founded in 1997., and became public in 2006 through an IPO. Now more than 180 insurance companies from 50 states.

Insurance products include prescription drugs, individual and family insurance and small business insurance.

The company offers several Medicare plans to choose from: Medicare Advantage - Private Insurance, Medicare Supplement and Medicare Part D - Paying for Drugs.

Medicare is the national insurance program in the United States for people from 65 years. It helps clients pay for health care except for some long-term care costs..

The program is currently in trouble., as the proportion of people of retirement age continues to increase significantly, while the working population is declining.. However, the program is not curtailed because of this., and, vice versa, trying to redistribute medical expenses, introducing modern achievements and technologies into the healthcare system.

UnitedHealthcare and Humana are leaders among representatives in the Medicare sector., which account for 44% all participants in this program. These companies use brokers like Ehealth, who generate leads for clients on their online platform for commissions.

The Medicare sector takes the lion's share of all revenue, however, its margin is steadily declining. This is because, that companies have to compete with state-owned exchanges in this saturated segment. Ehealth (EHTH) largely continues to grow due to the high popularity of online services and the IFP segment.

In 2021, the Medicare segment recorded a loss due to a decrease in the number of participants in this program by 14%.

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Ehealth Review: e-insurance online platform

Revenue by segment

2018 2019 2020 2021
Medicare 84% 88% 89% 88%
Small business and family insurance 16% 12% 11% 12%

Segment Margin

2018 2019 2020 2021
Medicare 91% 87% 74%
Small business and family insurance (IFP) 9% 13% 26%

Company business growth rate, million dollars

2018 2019 2020 2021
Revenue 251 506 583 538
Revenue growth rate 31% 101% 15% −7,2%
Net profit 0,2 67 45 −104
Adjusted EBITDA 33 133 91 −22

Despite steadily growing financial performance from 2018 to 2020, over the past two years, the company's quotes have decreased by 88%. This is due to the following reasons.

All digital healthcare platforms in the industry have been having difficulty estimating customer lifetime value lately. (LTV). This is due to the established practice of recognizing fee and commission income.. They mainly consist of commissions from insurance companies., which are calculated using estimated LTV payments, expected to receive, that is, commissions are tied to the value of LTV.

In recent periods, Ehealth and its competitors have had to adjust their LTV values ​​downward due to higher customer churn. Investors reacted negatively to these changes, which led to a significant decrease in the share price.

The second reason is related to the fact, that in previous years Ehealth preferred to outsource its agents, rather than hiring them as full-time employees. They called such employees supplier agents.. It was considered, that the commission from the attracted client did not stimulate the supplier agents to retain the client base and this caused the outflow of clients.

In fact, it turned out the other way around - these agents encouraged customers to change the list of products used annually., because they were paid a high commission on a new product in the first year and reduced in subsequent years.

Some direct marketing tactics also contributed to high churn., such as TV ads.

To solve these problems, the company has made important changes to the remuneration structure of agents, that have become linked to customer retention. And the discount rate has gone up., which Ehealth uses to value commission receivables, — with 5 to 7%.

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Business Growth Rate

Capitalization P / S P / B Total debt / capital
Ehealth 700 million dollars 0,62 0,45 0,04
Industry average 1,18 1,14 0,24
Ehealth's historical average 2,44 2,54 0,04

Ehealth showed a loss for 2021, so the multiplier P / E is not calculated for her, but in terms of P / S the company is priced at almost half the price of its competitors.

The company is worth less than its book value., what the multiplier P says / B. This low valuation is due to the company's poor 2021 results..

In 2021, significant funds were invested in improving work and attracting customers to the online platform, which had a negative impact on EBITDA. In total, from 2018 to 2021, investments for these purposes amounted to $228 million.

Ehealth invests in marketing to, to further refocus customer acquisition without the help of agents, thus saving on commissions. Already, the cost of attracting and retaining a customer is four times lower, than if an agent did it.

At the same time, the company has not accumulated debts during this time and maintains the “total debt / equity” ratio at a comfortable level, much lower than its competitors.

What are the company's forecasts for the near future?

Ehealth awaits, that all investments for 2018-2021 will have a positive impact on the financial result by the end of 2022, and net profit is projected in the first half of 2023.

Growth Drivers

growing market. Despite, that the small business and family insurance segment (IFP) growing at a faster pace, the company will receive the main revenue in the near future from participants in the Medicare insurance program.

Considering, that the elderly population is the fastest growing demographic in the US, Expected, that every fifth person in the country will be among the potential participants in this age program 65+. At the same time, Ehealth takes only 5% of the total annual volume of commission opportunities in this market, which means, the company has room to grow in this direction.

Investments in marketing. Ehealth Online Platform Becomes More Efficient, thanks to investments, the number of online requests in 2021 increased by 11%.

The trend will continue in the near future, because this way the company saves on agency fees, and clients, in its turn, conveniently select insurance from home without intermediaries. The current older population is more digitally savvy, than the previous generation.

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Can buy. Given its low capitalization, only 700 million dollars, Ehealth is an obvious candidate for a buyout by some larger enterprise. Moreover, in 2017 the company already received a takeover offer, but the management decided to develop independently.

Risks

Leaks. There is always a risk of personal data leakage on such online platforms, which can damage the company's reputation.

Competition. This sector is saturated with competitors, which could negatively affect the growth prospects of such small companies, как Ehealth.

Pressure. Almost half of the Medicare sector is occupied by large companies like UnitedHealthcare, and they are able to change the conditions of work with brokers like Ehealth almost unilaterally.

Now large companies consider the participation of brokers as a positive factor for business, since creating and maintaining your own sales departments is much more expensive.

Output

As a result of the negative financial results for 2021 and the outflow of Medicare clients, the company lost 88% its capitalization and turned out to be resold by all financial multipliers.

At the same time, the company has a number of advantages, such as a plan to reach net profit in 2023, reduction in operating costs in 2022 and the influx of new customers in growing and developing segments. Due to its low capitalization, the company remains an obvious candidate for a buyout..

Investor, who decides to invest in Ehealth, it is necessary to closely monitor the dynamics of operating costs and revenue growth. The better these indicators will look, the sooner the company will be profitable.

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