Livongo [LVGO] “A big fall will mark a big increase”
- Livongo has one of the most fast-growing platform on the healthcare market. [LVGO] reports Q2 19 total revenue of $40.9 million, up 156% year-over-year.
- 720 Clients, up 92% year-over-year organically.
- Total Contract Value of $74.2 million, up from $24.8 million in the second quarter of 2018.
- 192,934 enrolled Livongo for Diabetes Members, up approximately 140% year-over-year.
- Adjusted EBITDA: ($8.1) million in the second quarter of 2019.
Shares of healthcare industry solutions provider Livongo Health [LVGO] were falling hard in trading Monday after the company reported which was published recently. The digital health company, one of a few of lately go public after a more than two-year IPO drought for the sector, has created a chronic disease management platform incorporating connected devices, AI technology and personalized coaching to assist users with diabetes, prediabetes, hypertension, weight management, and behavioral health needs. At the moment, the company’s shares fell as much as 27%.
Sell-off
Despite the revenue beat, the shares sold off strongly and have been on a downward path for most of their post-IPO trajectory:
The shares are now below their IPO price ($28) in July. Possible reasons for the selloff:
- GAAP EPS miss of $0.16 (-$0.76) and non-GAAP EPS miss of $0.05 (-$0.46).
The Q3 revenue guidance does indeed seem a little soft, H2 sequential guidance is 20% over H1 revenue at midpoint, that doesn’t seem all that soft to us, and management also expects an increase in bookings in H2.
However, that 20% figure comes largely from the stellar Q2 figure which produced 27.4% sequential growth. Sequential growth is slowing down quite markedly in Q3 (3.9%) and Q4 (5.8%).
On the other hand, FY2019 revenue guidance ($159–162M) is still above the consensus ($158.4M). One could also worry a bit about losses and cash bleed, and indeed, there is worse to come with the IPO cost arriving in Q3. The company lost $40M in cash from operations in the first six months of the year and another $30M for investment purposes although most of this ($27.4M) was the result of acquisitions.
There are no immediate, or even medium-term worries about cash as the IPO brought the company ample funds ($377.7M), so at the end of July, the company had $411M in cash. Also, there are 9M shares still coming from stock option programs.
Beyond financial indicators that look good, there is no fundamental reason for a panic sale of shares which we saw in the last days of bidding.
The forward multiple should be considerably lower still, although one has to factor in the 9M dilution, so basically, we will be at 100M shares for a market cap of $2.6B and an EV of $2.2B.
I think the company could do well over $220M in revenue (that’s only a 37.5% growth rate), so the EV/S will fall well below 10 on a forward multiple.
Conclusion
More than 65% chance that shares will slowly recover from the sell-off as it seems to me the company has plenty of growth trajectory ahead of it.
Management thought it would be sufficient to guide a tiny little bit above consensus for Q3 and Q4.
TCV growth is comparable to billings growth at other SaaS businesses, i.e. it is a leading indicator for future revenue growth. If billings growth is higher than revenue growth, SaaS stocks usually go through the roof (Let’s see the [DOCU]), But [LVGO] was oversold-off because many investors don’t understand what TCV means and are too lazy to look it up in the 10-Q.
TCV grew 199% Y/Y in Q2, while revenues grew 156% Y/Y. Now, what other SaaS company can match such numbers? Even [ZM] or [CRWD] don’t come close.
LVGO’s share price will at least triple in the next 3–5 months, when people start to realize that this is by far the fastest-growing SaaS business out there.
—
Mr. Koch — serial entrepreneur and a Pre-IPO technology expert, he is also was a shareholder of Elastic, Twilio, Livongo, Tilray, iQiyi, and Xiaomi.
