Benefitfocus, Inc. and WebMD Health Corp.: Initiation of Research Coverage
Thursday, April 17, 2014
In a comprehensive report about employee benefits administration, William Blair & Company analyst Adam Klauber initiated research coverage of two companies he believes are poised to benefit from the evolving healthcare landscape, Benefitfocus, Inc. (BNFT $33.73) and WebMD Health Corp. (WBMD $43.87). Klauber assigned a Market Perform rating to Benefitfocus and an Outperform rating to WebMD.
In the report, Klauber said "rising costs and an increasingly burdensome regulatory environment are causing dramatic changes to the way in which employee benefits are structured and distributed. As a result, we believe the benefits decision-making chain will be significantly altered with consumers shouldering more responsibility for plan decisions and the associated costs. In addition, employers are looking for ways to reduce the cost and complications associated with benefits administration. We believe that alternative benefit platforms, including private exchanges, high-deductible plans, and defined-contribution funding models, will become the mainstream employee benefits solutions over the next decade."
Klauber added, "It appears that investors as well as strategic buyers and private equity firms have recognized the tremendous growth potential driven by the changing healthcare landscape. We believe the scarcity of publicly traded stocks is fueling these high valuations, which will likely drive additional IPO and M&A activity in these segments over the next 12 to 18 months, significantly expanding the investable universe."
"We recommend buying WebMD to exploit market dynamics," Klauber said. "We believe that WebMD is in prime position to capitalize on the shift toward the consumerization of healthcare. In addition to attractive dynamics in the online-advertising business, we believe the company will be able to monetize its highly focused user base (both consumers and physicians
Steve, I’m impressed by all the work you’ve done!
I’m lazier than you, and I’m looking at things more from the point of view of the psychology of the individual, as P.G.Wodehouse’s Bertie Wooster would say.
I’m Marty’s age, and have followed him since the late 70s, and I suggest you read these three articles on him that you can find in the archives of the New York Times and Business Week:
(I do hope Yahoo permits me to post this, they have a thing about refusing to post web addresses)
As with Medco, Marty’s idea was always that somebody else should pay for the services his company supplied, and in the beginning he hoped the physicians would do that. He obviously didn’t know that American physicians, spoiled by all those freebies they got from the pharmaceutical industry, were not prepared to pay for anything. Then I think he and Wayne Gattinella were sidetracked by the easy money they made through advertising. With the disaster of three years ago, they finally realised that standing on one leg is no way to run such a company. So now they are going back to the original idea, and in the end it will be the consumer who pays for everything, as always. I would think it makes sense for them to pay WebMD to keep their personal health record, and in some other ways the insurers are going to pay as well.
In the end, revenue from this should be much bigger and much more regular than revenue from advertising, which would become the icing on the cake.
Within the next few days, we should be introduced to the new version of WebMD’s flagship app that was promised for April.
David Schlanger: “…to provide a whole level of capability that never really existed before, and it's really the beginning of WebMD becoming the central place where people manage all of their health care information, all their health relationships… The relaunch of the WebMD flagship app is also an initial step, like Avado is, towards creating a whole notion of patient and physician connectivity, where the patients aren't just managing their health -- their personal health care data in a central place, but sharing it with their physicians in a more active way to manage health. And we see, long term, that, that opens up more transactionally-oriented revenue streams beyond -- in comparison to our traditional advertising model. And in certain circumstances, those transactional-type revenues will be paid for by consumers. In other cases, they'll be paid for by providers, but that's more of a longer-term opportunity for us.”
This should transform WebMD into a company where revenues are not being counted in the hundreds of millions but in billions of $$$, and finally put a smile on the faces of long suffering shareholders.
If the recent weakness in WBMD shares is due to people selling on insider knowledge, one should wonder whether one can trust management any more and perhaps its time to abandon ship after having tried to get the attention of the SEC.
If, on the other hand, it is due to the general stupidity of the market, and the low volume suggest this point, then perhaps one can be much more hopeful and expect an excellent result with the announcement of the first quarter earnings.
If this is the case, and given the extremely high short position, the turn around could indeed be dramatic.
Let’s not forget that in late 2013, the company acquired the start-up technology company Avado, and with it a number of hot high-tech personal. Given the rapid change in high-tech, there probably was a generation conflict between the new comers and the old chief technology officer, who originally learned his trade at IBM.
As the company said in their announcement, already in 2013 part of his responsibilities were take over by others.
He just preferred to quit instead of fighting for his position.
“So unless Marty is even more cranky in his older, adult diaper wearing years”
I’m sure Marty is going to love this.
What age are you?
I’ve known Marty for more than 35 years, and once you’ve achieved what he has, come back and talk!
If not, just keep playing with your toys and shut up!
I would think if the company was happy to buy 1.4million shares at an average price of $42, they should be pleased to buy some more now at around $41.
Let’s not forget, this is the end of the first quarter, and lots of money managers are moving their positions around. If somebody wants to buy some cheap stock, it is now.
Once this is done, the company will have bought all they wanted, and there wouldn’t be any reason for them to announce a re-adjustment of their annual guidance, for example.
This has happened before, and it happened before the announcement of better earnings.
“And by the way, they have a history of pumping and insider dumping”
Before you make an accusation like that, which could be considered to be defamatory, perhaps you should study SEC Rule 10b-18, which makes pumping pretty difficult.
Well, there is one analyst or prophet on this board who was sure this was going to go below $40 – and there was the chap at Stifel Nicolaus who thought advertising was slow.
Would the company buy back their own stock if this was the case? I don’t think so!
They bought another 1.4million shares at an average price of $42 in the first quarter.
As they have inside information, that should put to rest all negative opinions by analysts on and off this board.
As far as I know, Marty's son is working for WBMD, and his daughter is looking after the horses. They are both grown up and don't need to be looked after, and Marty, without a job, woud be bored stiff.
I haven’t really thought about it, as I don’t think the company is for sale.
I think the new WebMD flagship launch in April will be decisive for the future of the company. If it is the success Marty and Co. hope for, market reaction to it could be quite impressive.
He might think he doesn’t need the poison pill any more, with all those shareholders that panicked two years ago now gone and the threat of WBMD falling into the hands of a speculator for peanuts gone as well. Marty always knows and knew with all his companies who held most of the shares and had a direct relationship with those big boys.
I think the market is too tight for anybody to do anything with WBMD against Marty’s wishes.
That does not exclude of course for Marty to make a deal with somebody who he thinks would be an asset to the company and its employees and shareholders.
But I doubt he is ready for it yet.
The takeover by Merck was a surprise, as all of Marty’s actions have always been.
However, it made a lot of sense, as Merck had become Medco’s biggest customer by far and was such in a position to apply pressure on Marty. He was more or less obliged to agree to the takeover.
Today the situation is different. Marty is older and I think he wants to make WebMD into a big success and leave it as his monument.
The fact that he and Carl Icahn parted company is already an indicator that he doesn’t want to sell to anybody, as a sale by the two combined would have been much easier given their combined experience and know-how. Marty is a creator, willing to hold on for the long term.
Icahn is a short term operator, trying to get the most out of existing companies.
I think Marty knows more about the health care industry than anybody else, and my bet is he is his ambition is still the same: Making a lot of money and a great reputation by making health care more affordable and efficient.