📮The Sunday Newsletter archive

The LinkedIn for physicians is almost public

Hello fellow investors👋,

Happy Sunday

If you’re wondering what happened with the last Sunday Newsletter — no it didn’t land in your spam folder. There was no newsletter at all, as no promising IPOs were scheduled for the week. By promising, I mean growth companies with solid fundamentals and great future potential, and two such names are set to go public next week.

For shiny Teslas
A Tesla car shining

It’s very interesting to see legacy companies transform their business models to stay relevant and attractive in the modern investing environment — is no easy task. Mister Car Wash 🚗🧼 ($MCW) is this type of company. It’s the largest and fastest-growing car wash chain in the US with 344 locations as of March 31. Although it may seem like a boring business, let me explain why it’s actually an attractive investment.

Mister Car Wash focuses on growing its membership business, Unlimited Wash Club (UWC) that generates recurring revenue. As its name suggests, it offers car owners unlimited car washes for a fixed monthly fee. In 2010 subscription revenue accounted for only 15% of total sales and now accounts for 62%. Even in 2020, when people drove much less due to lockdowns, it managed to grow its subscribers by 25% to 1.2 million. In today’s investing environment this is exactly what investors are looking for — companies with recurring revenue — and is remarkable that a legacy company like Mister Car Wash is successfully modernizing its business model.

MCW is not a hyper-growth firm, but has a history of steady growth and is profitable. Over the 12 months ending on March 31, revenue increased 17% to $595 million and net income increased 34% to $76 million. Growth is very likely to accelerate this year as people are using their cars again.

Commentary: While Mister Car Wash is not the kind of disruptive company many investors are looking for, I like that it focuses on becoming a modern subscription business.💸

Meanwhile, the US car wash market is highly fragmented, comprised mainly of independent operators, with 74% of them operating only 1-2 locations. Mister Car Wash, as the largest operator in the country, is able to make investments in training, technology and innovation that independent operators typically lack the resources to do. The company’s 344 locations as of March 31, represented less than 5% of the market by location count, underscoring MCW’s strong growth potential.

The company has priced its IPO at a price range of $15.00-$17.00 apiece and at the midpoint price of $16, its market cap would approximate $4.7 billion. At this price, its P/S ratio would be 7.8 — a reasonable multiple given the company’s financials, and its focus on growing the subscription business. Shares start trading on Friday.

The LinkedIn for physicians

You’ve probably never heard of Doximity ($DOCS) unless you’re a healthcare professional. It’s a free social media platform for doctors that’s very similar to Microsoft’s ($MSFT) LinkedIn. Users can search and connect with colleagues and specialists, as well as discover career opportunities unique to their clinical skill sets. The newsfeed delivers medical-related news and info, relevant to a physician’s clinical practice.

In 2020 the company launched a new telehealth solution 🩺📲, to connect patients with care providers. it’s a subscription-based service and the company currently has subscription agreements with over 150 health systems. Beyond telehealth subscriptions, DOCS makes money from ads on the platform and from Hiring Solutions. This is another subscription service used by health systems and medical recruiting firms that provides them with the ability to search and connect with medical professionals on Doximity.

The company’s financials are impressive with big profits, and strong revenue growth. For the year ended March 31, revenue jumped 78% y/y to $207 million, and net income surged 141% to $53.3 million. Doximity has been profitable for years and over the last 12 months, its net income margin reached 25.8% — unusually strong for a company with such growth rates. This is probably due to the platform’s network effect, as it’s now used by 80% of US physicians.

Commentary: Doximity is a niche social media platform and although it competes with Linkedin, its focus on medical professionals makes it stand out. The company has still plenty of room to grow by offering new services in an industry that has been notoriously slow 🦖 to benefit from tech-based improvements. Its newest service, the telehealth solution has been a huge success, with more than 63M telehealth visits performed so far.

The company has priced its IPO at a midpoint price of $21.5 per share that translates into a market value of $3.8 billion. At this price, its P/S ratio will be 18.5, which is reasonable given its impressive metrics and market position as the LinkedIn for healthcare pros. Shares start trading on Thursday.

Ranking next week’s IPOs:

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