HEALTHEON/WEBMD
HLTH Receives Antitrust Approval to Purchase Envoy: The Event We
Have Been Waiting For
Sheryl R. Skolnick, Ph.D. (212) 407-0418 sheryl_skolnick@rsco.com
ROBERTSON STEPHENS
Healtheon/WebMD HLTH 14.88 $ 5/22/00
Industry: eHealth
Change: Yes/No Was Is Sheryl R. Skolnick, Ph.D. 212-407-0418
...Rating: No NR* Martine Gilbert 212-407-0294
EPS 1999A: No ($3.02)
EPS 2000E: No ($10.13) FY DEC 1999A 2000E 2001E
EPS 2001E: No UR EPS*: 1Q ($0.30) ($2.47) A UR
52-Week Range: $126-15 2Q ($0.25) ($2.64) UR
Shares Outstanding (MM)* 243.4 3Q ($0.24) ($2.56) UR
Market Cap: (mil) $3,621 4Q ($2.23) ($2.46) UR
Avg Daily Volume (000): 2,600 Year ($3.02) ($10.13) UR
3/00 Bk Value/Sh pro forma $22.54 P/E NMF NMF NMF
3/00 Tot Debt/Tot Cap 0% Revs($MM): 1999A 2000E 2001E
2000E ROE: NMF 1Q $17.56 $65.88 A UR
Price/Book Value: 0.7x 2Q $22.70 $69.00 UR
2000E EBITDA/Sh: NMF 3Q $28.65 $80.30 UR
Dividend/Yield: $0.00/nil 4Q $33.24 $92.00 UR
3-Yr Sec Growth Rt: 70-100% Year $102.15 $307.18 UR
* Represents average number of FD shares EqtyMktVl/Rev 35.4x 11.8x
EPS calculation based on primary shares
*Robertson Stephens is acting as an adviser in the MMGR, CARI, ONHM transactions, and therefore
in keeping with Firm policy, HLTH is maintained at "No Rating."
Key Points:
ú This morning, HLTH received its long-awaited antitrust approval to buy Envoy. Recall
that HLTH had received a second request on behalf of antitrust officials for more
information regarding the deal, which we believe, led to a serious overhang on the stock.
ú In our view, this is a huge positive for the company for the following reasons:
ú 1)We remind investors that Envoy is the largest processor of EDI transactions in the
US, processing 1.4 billion transactions per year through a network of 250,000
physicians, 35,000 pharmacies, 47,000 dentists, 4,500 hospitals and 900 payers.
ú 2)A shareholder vote can now take place to close the deal with Envoy, which the
company expects to close in the near future.
ú 3)In our view, the closure of this deal is the key to the rest of HLTH's strategy in the
eHealth space and therefore makes the closure of the Medical Manager (MMGR,
$23.75)/CareInsite (CARI, $18.88) deal more likely since MMGR/CARI do not seem
to have a viable alternative, in our view.
ú Our model does not include the closure of this deal at this time. However, management
guidance remains the same as it was when originally announced. The Envoy revenue run
rate is approximately $60 million per quarter for '00E, with a 20% positive EBITDA
contribution and a revenue growth rate of approximately 10% for '01 and an EBITDA
positive contribution of 30%.
ú In our view, this is a significant event and may provide a catalyst to jump start the stock.
In our opinion, this may be LIFE after DEATH in the eHealth space?
The Company: Healtheon/WebMD, in our view, defines the true nature of the Internet in
healthcare. The company embodies our long-term vision for Health eStocks by
providing a single, unified point of entry and information infrastructure platform
for participants in the health care process to communicate, process information,
gain knowledge and conduct transactions. The company uses Web computing,
Web-enabled and legacy technologies (such as EDI) as necessary to create the
what we consider the first true end-to-end platform using a single patient-specific
master patient index at its core. That is, Healtheon/WebMD uses whatever
technology that is currently available to immediately create a service that "works,"
while simultaneously making the large and significant investments necessary to
build a true Internet infrastructure. Through the four-way merger of Healtheon,
WebMD, MedE America and Medcast, the company touches each constituency in
the health care sector to an extent unrivaled by any competitor, in our view. The
company has a two-pronged service offering: a consumer portal and a physician
portal. The company offers connectivity and transactions for physicians,
consumers and payers over a network consisting of 650 payers (direct access
through EDI), 280,000 physicians (66,000 physicians currently on line), 5 national
laboratories, 46,000 pharmacies, 1,100 hospitals and 11,000 dentists.
Investment risks: Among the risks are: 1) The recent merger of 4 companies, which leads to risks
related to the integration of technology, operations and personnel 2) A significant
amount is and is expected to be spent on sales and marketing and there is no guarantee
that this strategy will generate the revenue expected 3) Healtheon/WebMD?s revenues
are concentrated in a few customers at this time and its ability to generate revenue
would suffer if it lost any of these customers 4) Healtheon, WebMD, MedE America
and Medcast have incurred, and we believe Healtheon/WebMD will continue to incur
substantial losses. 5) Healtheon/WebMD is dependent on strategic relationships to
generate a large part of its revenue. 6) Sales of large amounts of Healtheon/WebMD
shares following the mergers could adversely affect the stock price.
Investment Thesis: Given its distinguished position, in our view, as the first company to truly understand
how to implement Internet strategies in healthcare, we believe that
Healtheon/WebMD is positioned to achieve 50% market share of physicians and of
the 30 billion transactions per year that could be done on the Internet. Assuming
further that it becomes the leading site for advertisers and sponsors seeking to reach
healthcare participants, the company could achieve a $13.5 billion revenue level in
five years. |
