Chit Chat Stocks - Doximity (DOCS) | Not So Deep Dive

Episode Date: August 10, 2021

Doximity is a networking service for medical professionals. Often referred to as the LinkedIn for doctors, Doximity allows medical professionals to connect and stay up to date on the latest news and discoveries. Listen closely as Brad, Brett, and Ryan go through the history, financials, and future prospects of Doximity. Enjoy the show! Our Tuesday Not So Deep Dives are sponsored by Potential Multibaggers. Multis are looking for stocks that have the potential to go up 10x in 10 years. Check-out the service here: https://seekingalpha.com/checkout?service_id=mp_1308 Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Brad’s work? Find his Substack: https://stockmarketnerd.substack.com/ Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Contact us: [e-mail] Timestamps Company Background | (2:57) Industry | (8:49) Management & Ownership | (11:23) Valuation | (13:28) Earnings | (14:27) Balance Sheet | (16:28) Our Analysis | (18:27) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. Welcome in. This is the Tuesday Not So Deep Dive episode. I'll say it one more time, and maybe in another episode, we're flipping up the schedule. The Tuesday show is going to be

the Not So Deep Dive, and we're going to be alternating with Brad and Ian. So, we're going to be doing one show a week in the same exact format. And then Thursday, maybe we'll save that for when you listen to it, but we're going to have similar interview style, but in a deep dive format. You'll have to listen, I guess, to find out if we want to tease that, but we're doing the same show as always today. We're going to be talking Doximity. This was, I guess this was my pick, but Brad, have you heard of this company before it IPO'd at all? No, this is my first experience with it all right and ryan anything uh i read a thread on twitter that's there we go yeah there was a good ryan reese i'm an expert yeah so this is the first look for all three of

us so if we get anything wrong do not come barking at us uh we're doing the same as you if you're an expert on the company uh you may not want to listen but i guess i guess i shouldn't say that for like if we're trying to attract listeners to the show but we're going to be talking to but first we need to talk about our flagship sponsor for the Tuesday episode, and that is Potential Multibaggers. The aim of Potential Multibaggers is you find stocks that can go up 10X over the next 10 years or compound at 26% per year. We're actually having the founder, I guess, of Potential Multibaggers, Chris, on the show soon. One of the next ones in the next few weeks here, or maybe this week, if you're listening to it now. Potential multibaggers picks

high growth stocks to hold them for a long period of time. Of course, you have to buy and verify, and that's why it's called potential multibaggers. He's not guaranteeing success, but his track record has been very strong. He's picked Shopify at 77, Cloudflare at 39. There's 23 potential multibagger picks and possibly more over time. He is constantly doing research for his multis, I guess as they're called. So if you want to become a multi, you can go to Seeking Alpha and look for From Growth to Value. Google it if you want to find it there or go to at From Value on Twitter. Links will be in the show notes. All right, Brian, do you want to introduce Doximity? Yeah, I'll go through. Doximity is sort of

an interesting platform and it makes money in a way that you probably wouldn't think, but it's basically a leading digital platform for medical professionals in the US. And so they do a few different things, but their mobile app runs a bit like a standard social media, but also it's like a combination of Twitter and LinkedIn for medical professionals, I guess is the way to say it. And like most social networks, it's free for U.S. medical professionals to join. So becoming a member, it's like signing up for any social media. And then once someone joins, they gain access to Doximity's core tools, which are basically grouped into three categories. So there's professional network so this is you build a profile you can connect with colleagues you have

search capabilities so you could find other other physicians either by name or expertise or like their affiliation to a certain field or hospital something like that you can just basically find whatever people you're looking for and then there's career management so setting up job notifications if like a career pops up in an area that you like you know you can get you can immediately see it that's sort of the i guess the linkedin parallel seems very similar linkedin in that regard although we don't have access so we can't try it out we're not uh we are qualified to go professionals that is correct but there's also a student part in the career management so if you're a student like a medical student and you're looking for medical schools or maybe you

want to like transfer or something it gives you sort of the best schools and you can kind of you're which not only is a good good value for the student but it also kind of locks them into system which is something we tend to like and 90 of the students are on there i think that's the number they gave out if i'm remembering correctly so really high and i'll just go ahead and say it right now more than 80 of physicians in the u.s are on doximity so this really is already an established social network uh of or professional network for medicals or for physicians uh and then the second component of doximity's platform is the news feed so this is the part that's more like a traditional social media. And for most people, it's probably what their social

media looked like for the last year, which is just like COVID news. But basically you're getting medical articles, medical videos, updates on your peers or colleagues. So this is a lot like a Twitter or Facebook or something like that. And then there's clinical discussions. And then there's also sponsored content, which is where this is one of those places. And we'll talk about where they can monetize, where pharmaceutical manufacturers can add sponsored content to certain newsfeeds, a lot like a Twitter. And then productivity is their third category. So this is more unique to Doximity than anything else. So medical communication, I mean, I kind of went into this blind. And from what I understand is medical communication today is pretty antiquated.

So it's a lot of legacy systems because communication has to be HIPAA compliant. So it's like you can't plug and play a donkey sign. Yeah. And also like you had to do like hard copy faxes for a long time and you had to do like physical signatures. And so this is a set of digital tools that includes e-signatures, digital faxes, secure messaging, and then dialer free and dialer pro, which Brett will talk about. kind of their telehealth uh offering uh but as far if you're wondering like what's a good example use case for someone that's on this the ceo actually highlighted a pretty good one and so he said that they had a physician on the platform who had a patient that was bitten by a lab monkey and the lab monkey had been infected and so this like a really unique case i know uh and there

were only about five people in the entire world that would have known what to do with this and And so three of them happened to be on Doximity. They were able to find them on Doximity, send them a note and get advice. That's kind of the power of this platform. It's really a way to find anything you might need. And there's no, I don't know why, what the rest of the 20% of physicians

aren't doing on the platform. It seems like everyone kind of has to be on it. Well, it could just be people that are, you know, they might not, they could be 30 year veterans in the industry or something like that. Yeah, that's true. Then I'll talk about the history. I hope I painted a good picture for what the platform's like, but the history of the company, Jeff Tangney is the founder and CEO. And he says he did a pretty

extensive, it's like a 13 minute interview. I recommend looking it up on YouTube, but he said he didn't really have much of a choice in choosing his career route. He said he had two physician roommates at Stanford while he was a Palm Pilot amateur programmer. And so out of that, he ended up starting a company called Apocrates in the middle of the dot-com bubble. And Apocrates eventually went public, was later acquired for a little less than $300 million. And then he followed that on in 2010 by starting Doximity with the goal of basically solving a single problem for doctors, which was to make communication and information sharing for medical experts easier and faster, which is really what they've done. And he talked about this in the interview as well,

which is, in quotes, we can't make it profitable to hoard patient information. And so that's sort of, I guess, their mission is to avoid that. And then that's really what they've built with Doximity. And it looks like Doximity has only raised about $82 million in private rounds prior to coming public. They went public a little over a month ago. But I do think it also helped that Tangney had money from Hippocrates. I tend to like that when they've sold a company before, because then you know that it wasn't just diluted down by round after round of private financing. Yeah, that makes sense. I do like how they haven't had to raise too much money. They have a strong history of profitability, but I'll try to hit the industry and competition. It's a

bit weird. I believe this is kind of a zero to one type of deal where they build out their own product that wasn't even there before. So I think it's going to be tough to identify any competitors. But from what I looked up online, there's Zest Health, Sermo, Healthgrades, and DXY. They're competitors, but with 80% market share in their core demographic, and demographic might not be the right word, but in the core, like standard primary physicians, I mean, they really don't have any competitors because they have 80% of the market. Some of the other forms of potential competition could be traditional, you know, media and social media networks, especially LinkedIn, like Ryan mentioned, other, you know, office communication products, and then nothing where

a doctor doesn't use any of these services. And then there's within telehealth, they compete with all the Telda products and all those other ones. Although that's only a small part of their business right now from a financial standpoint, but they do have a lot of visits on their platform. And then they're also competing for pharmaceutical and healthcare advertising. I guess this is probably the biggest one to focus on from a business perspective. So you're really competing with all forms of advertising mediums. I would maybe check what the advertising budgets are. at some of these big pharmaceutical companies to kind of give a, that's kind of a good TAM proxy, but they estimate that there's an $18.5 billion TAM, which if you don't know,

total addressable market, and that's broken into three parts, which would be pharmaceutical marketing at $7.3 billion a year, US health system marketing, $6.9 billion a year, and then software for telehealth at $4.3 billion a year. I think that gives a good overview of the industry. Brian, did you have anything? You sound like you may have had something to say there. We should maybe talk about, because I don't know if we made it clear, how they make money. Do you want to kind of mention that? There's three monetization tools, but it's primarily marketing. Yeah. So the main way they make money right now is sponsored stuff from these pharmaceutical companies who say have new products, have new pills, whatever it is, and they want to get it

in front of the people who are going to prescribe them, which is the doctor. So that's high value marketing for them uh brad do you have anything and then after yeah i would ownership sorry i would just i would describe that revenue segment for people looking for an example as kind of a good rx model of of charging um these pbms and branded manufacturers for accessing their their vast scale um so so that that's the that's the concrete uh comparison that helped me yeah all right you want to hit management sure thing um so we touched on it briefly but ceo and co-founder is Jeff Tangney, former president, co-founder, CEO of Hippocrates, as we talked about. He grew that to $100 million in sales and $20 million in EBITDA. So he grew a large

profitable company. So kudos to him there. And he did it over 11 years. So it wasn't just an in and out thing. It really was him building that company. He got started as an investment banker at Goldman Sachs, just 85 glass door reviews and a 93% approval rating. So limited sample size, but good news so far there. The CFO is Anna Bryson. She's extremely young. She is 31 years old. I'm not sure I've ever seen a CFO be 31 years old. So that was pretty darn noteworthy to me. She's the former VP of strategic finance at Doximity before she got this promotion. So she did climb the ladder a little bit. She founded ACB Capital, which is, it was a private investment advisory firm, nothing massive, honestly. She traded bonds for the Royal Bank of Scotland

business. And yeah, that's her background. But the highlight there, she's a 31 year old, which pretty crazy to think she's seven years older than I am, and the CFO of a multi-billion dollar company. But so it is. And the chief commercial officer is Joseph Klein. He was a former senior vice president for WebMD. So pretty good experience there, along with being the former chief commercial officer at Sharecare. So that's a pretty high profile SPAC that just hit public markets that some people are pretty excited about. He also worked with Jeff at Hippocrates as the former chief commercial officer, which just kind of gives some anecdotal evidence of Jeff Taney basically being a good person to work for and people wanting to continue

working with him. But we do have ownership data after the offering, which it was really nice that they updated that so quickly. We have to cover this class A, class B share structure that we always seem to have to cover with class B shares getting 10 times the voting power of class A. Tangney owns 32.9% of the float and 32.4% of the voting power. All right. That'll make sense. I'll hit valuation quick. Market cap 10.5 billion. Ticker is DOCS. So D-O-C-S-E-V is going to be closer to $10 billion after the IPO cash raise. There is a lot of cash at the IPO. Trailing EVA sales is expensive, 48.3, but they're high margins like Ryan will get into. So trailing EVA to gross profit is only 56.9 comparatively. That's an

only. That's still very high. But trailing EVA to free cash flow is 128. I don't have the exact numbers, but there was some decently harsh dilution in the years coming to the IPO. This can change as you transition to be a public company, but I think that's something investors should track. You know, that can hurt you, especially at a high valuation like this, but valuation was pretty simple. Ryan, you want to get into earnings? Yeah. I'm hoping people didn't just turn off the podcast as soon as they heard the sales multiple. But it, yeah, it is definitely high. I'll talk about the earnings a little bit. So they just came public. They have not had a public quarter yet. So they had 2021 revenue of about $207 million. That's up 78% year over year.

And so this was the last year before they came public. So I'll just basically, all the financials are from there. And then 80% of revenue comes from that marketing component, which we talked about. But the other, they do also generate revenue from hiring and telehealth solutions. So they help kind of with hiring. I believe they get a fee on that. And then they have 85% gross margins and 26% operating margins. They are very profitable. They, uh, I think it's 38% free cashflow margins. Uh, they had about 7 million in stock-based compensation, which is like three and a half percent in revenue. So it might subtract that out if, if you were looking at the free cashflow margin there. Uh, and then they had net revenue retention rate of 153%. So,

uh, very, that's a figure, I guess. Yeah. But they probably drove the multiple single-handedly. I mean, but here's the thing. There are barely any customers, so that's – It has to be. It has to be high. And they have 20 – I'm forgetting the figure, but – 29 over 100K, oh, 9 over a million. That could be – that's ballpark, ballpark. Yeah, and the other thing was there's like 20 out of 20 of the biggest pharmaceutical manufacturers are already on there, if I remember correctly. Right. So new customers, unless they're going into new product lines, won't have that much of an impact. But yeah, Ryan, did you have any other numbers?

Yeah, they have about, I guess, non-financial. I may have already mentioned this, but they have 1.8 million medical professional members on there. And then I forgot to put in the number here, but maybe I'll just get to it on the second half. They're growing their number of customers that contribute more than $100,000 at a good rate. And I don't have that number in front of me, so I'll just talk about it on the second half. Okay. Yeah. You'll look that up when we go to the break, but before we do, Brad, do you want to hit balance sheet? Yep. Sure thing. So 66 million in cash before the IPO, they raised another 600 million in cash after the IPO. The phrase is interest expense, credit revolver, credit line, line of credit, anything like that cannot be found in the S1. Virtually zero interest expense, and it looks like zero debt on the balance sheet. They are operating cashflow positive, free cashflow positive. So balance sheet is pretty darn pristine at this point in time. Yeah, no concerns. I mean, like five years of historical

profitability or cash generation. I've got the number. I've got the number. It's 200 customers with at least 100 that are contributing at least $100,000 in revenue. Okay, there you are. There it is. Very, very impressive there. But yeah, back to the balance sheet. I don't even know why they raised this money. They don't need it. It could have been a direct listing. I don't know. I mean, and going back to Ryan talking about, they've only raised $80 million from the IPO. So it's not like they're really aggressive on the fundraising trail. So yeah, this was a big step up in their funding ambitions.

So, and they didn't really highlight a ton of future growth opportunities. It kind of seems like the opportunities they are pursuing currently, they see as really early innings. So they'll just keep pursuing those, but $600 million. It indicates that amount of money raised indicates that they're going to try to invest in some other stuff, but there wasn't much of an indication from what I read that there was going to be anything that requires a ton of money

or won't be highly profitable to start. Oh, I will say, though, it's nice to see a company. Doximity did not need to come public to survive, which after all the recent IPOs and SPACs that we've looked at, it's nice to see a company that isn't just doing it at the most opportune time because of what the financial markets look like. True. What we're talking about here, It may make it sound like we're saying it as a negative, but it's almost just kind of a weird quirk, like, because it's such a positive that they have such good, you know, cash flow numbers.

All right, let's take the ad break and then we'll get back, talk more of our opinions on what we liked, disliked about Doximity. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts. Oh, like this one, so you don't have to worry about malware. Or when your kid downloads a song. from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply okay welcome back next up we have anecdotal

evidence but we might want to skip this because i got nothing brad yeah nothing we're not allowed to have anything. That's true. It is an exclusive platform for medical professionals. Only it feels like this could end up being a dating app for these medical professionals. That's my, uh, careful. It's a future growth. Uh, but no, I mean, it's not even exclusive, like clubhouse exclusive where you need an invite. They, they have to verify you that you're a part of the medical community. And that's one of the value propositions. So let's move into future growth opportunities. Brad, what is yours? Yeah. And I had the exact same thought on what you guys were just talking about. So I'm going to skip that and cover my other one. So, and I was going to be

joking, but maybe pretty serious. But anyway, international expansion, it seems like it's really in the cards for them. They don't really pursue it right now, but they did call it out as a hypothetical several times throughout the S1. Germany, just to kind of give an idea of regulatory momentum, just passed the Digital Healthcare Act, which really sped up the process of reimbursing virtual digital healthcare solutions like this. So that could really serve as a domino for momentum in Europe and for expansion becoming more lucrative

and more compelling for them down the road. Yeah, I mean, there's doctors in every country. I hope there are. So, yeah. I would say, doesn't this, I mean, maybe it's just a nice professional network to have in any country, but doesn't this platform thrive on the fact

that our healthcare system traditionally hoarded information because it was like a strategic advantage. Well, kind of, but I mean, there could be less of a chance for marketing or the insurance kickbacks for these pharmaceutical companies or stuff like that. But the core product of getting the information, it seems like that's applicable to everywhere

that has good internet access and strong mobile phone usage, which is basically everywhere at this point. And if COVID's any – COVID's a great example where having a platform of global doctors is a huge advantage in getting ahead of this stuff. And you don't have to be – and on that type of place, I mean, doctors probably disagree on stuff like COVID or whatever, but you don't have the crazy people that aren't doctors on every other social platform bogging stuff down. so on this one they can probably communicate without people you know saying just spouting off random stuff they read on a youtube page but uh ryan do you want to hit your future growth opportunity it seems like you have the dating app i want to see what your pitch is for this yeah i

mean okay this is kind of seems unlikely but i feel like doctors always date doctors or like i feel like medical community well you're working like yeah community you're working 16 hours a day and those are the only people you're seeing you know so i don't know if this is more of their future growth opportunity or like a match group future growth opportunity but maybe leveraging that that's kind of more a fun future growth opportunity i think more seriously and this is still even a little bit pie in the sky thinking but we talked about the valuation if they are to reach that valuation or make it warranted i think they have to open up the top of the funnel a little bit and because they've almost more products they're kind of saturated yeah at this point in

the physician market especially domestically or only domestically um and what are they going to take all of pharmaceutical advertising spend that seems a bit far-fetched yeah and i i don't know if it applies to like totally different groups where like i don't know if it applies to like i don't know if you could just copy the doximity core functionality to like engineers or something like that but you could easily i imagine integrate like nurses and other like members of the medical that they're doing that right now they're trying to go for physical therapists psychologists and nurses too so yeah yeah that's probably i think the best way to go about it you have to open up the top of the funnel and then that also opens up uh new avenues to bring marketing teams or sorry

marketers in so physical therapy maybe it's like certain medical devices or certain like exercise equipment exercise equipment yeah stuff like that that makes sense uh so i think that's probably the most important future growth opportunity for them all right and i'll talk about one they're doing right now that should be big um or is big excuse me telehealth services so this is called dialer and dialer pro it's pretty standard stuff but it's kind of the way they got it is they already had these doctors on the network and they got them to join it uh it had 63 million telehealth visits in fiscal year 2021 which ended uh they're one of those companies that has the fiscal year before the actual calendar year, or it's like the one month in period,

which is much more than Teladoc, which is surprising to me. Maybe they count stuff different. Who knows? But that seems like a great funnel, like to add on different types of services. Pretty easy to add this on if you already have physicians on your network. And looking at how little revenue it generates currently, I believe it probably has strong pricing power, but we'll see um who knows who who picks the telehealth service and like let's say you're meeting with a doctor like is it based on where the customer usually is or like oh you're okay so this one's more primary care but brad you know teladoc i don't know if you yeah so in teladoc and good rx kind of go about this in a different way so good rx is really they they have the direct to consumer

niche where they're connecting physicians with consumers. And Teladoc does a little bit of that, but it really focuses on signing these large enterprise deals with Fortune 50 companies and rolling out their telehealth services across like an HCSC. If I just got that acronym wrong, I'm so sorry, but a large insurance company. So that's really what they do. So it kind of depends on how they envision themselves in the future. Do they want to be going through payers or do they want to be going direct to consumer? And because they're so focused on this physician or creating value for physicians, they can really go about it whichever way they want to, I think. Yeah. So what's interesting about that is I think, yeah, telehealth is trying to embed

themselves in the corporations or whatever, add yourself onto your company health insurance. But Doximity, they have the relationship with your existing primary care physician, and then they can say, all right, we can hop on this if you have any questions with me. So that's maybe why the visits are so high because it's just something you can add on if you're visiting your primary doctor you know once in a while okay let's move on to highlights and lowlights brad what did you like what did you dislike about doximity yeah hitting on the the highlight or earlier not not the highlight but but the point that ryan um touched on earlier with them being involved with 80 of physicians already the scale that they have achieved is pretty amazing and the fact

that they've gotten there while being free cashflow positive and while raising under a hundred million dollars per IPO is pretty, it's special. Um, in my view, we hear a lot about these data advantages that every company likes to pirate, but, um, but honestly, when you have the scale advantage, that's what, that, that's what actually leads to the data advantage. And this company has that. So, uh, I do think that they have, they have a data advantage that they can leverage in, in many interesting ways going forward. Uh, The low light is the recently announced, and I'm a Teladoc shareholder, so I'm a little bit biased here, and a Microsoft shareholder. The low light is that Teladoc and Microsoft partnership, the Teams partnership and the integration that Teladoc's having.

So the main pain point for Teladoc and Microsoft that they've found with physicians is smoothing out communication between third parties. And this really is going to solve a lot of those issues. So that is a pretty daunting competitive combination to be going up against in the future. And I will say that if I'm calling out competition as a low light, it's because there's not a lot of mean things to say about the company. And if the opportunity is this good, then there will be many, many, many competitive entrants. So I'm reaching for a low light there, but that's what I'd go with. Okay, Ryan, what are your thoughts? Yeah, I would just, I mean, at this point, they have a pretty significant moat within their addressable market.

uh in terms of customers or physicians i guess i should say the i mean 80 is a huge figure and it sounds like this is pretty core to the day-to-day uh lifestyle of a lot of physicians and then i guess another highlight for me is that the ceo seems great uh i watched how many what percentage of ceos seem great when you watch the videos though i've never listened to a ceo talk and think to myself but i'm an internal optimist so so i'm different i'm there's plenty of ceos i don't like i don't know it feels like when we do the show you're like a ceo looks impressive you know i don't know they they're just i i just worry about that because they're meant to sell we did that that agriculture spack a couple weeks ago that was yeah that one was i mean

that that one's red flag that guy pretended i'd say i don't like most spack management teams but it uh yeah i would say in terms of likeness for the ceo i i'd put him in like the you know top 10 i don't know i just you can't do that i like after watching 30 minutes of them it's just tough you know what i mean i don't know i've been tricked so too many you know i've been tricked a few times i just get worried about that but sorry you know the company it sounds like i mean he was able to do this on his own very few funding so i mean that that is yeah he had co-founders as well but that's that successful exit that he had um building a profitable business also it it makes his track record a little bit more legitimate and and these claims that he's making and and uh the

the impression that we're taking from him a little bit more i think a little bit more real track records real yeah yeah and then i guess yeah so they provide a lot of value i think that's pretty clear and it's a sticky platform and the low light for me though it's like i just keep thinking like this is like where do you go from here it feels like they've hit saturation at least in the u.s which i don't i mean international health care systems might be a little more convoluted and difficult to navigate so i mean this is really u.s physician market is their core competency they've really kind of hit maturity there now i you could say monetization hasn't hit maturity but i don't know wouldn't if there's already 80 of physicians on this platform wouldn't

advertisers or pharmaceutical manufacturers have already felt eager to advertise on here like is this something that comes after the fact or have they just not pulled that monetization lever yet It's under a subscription service, so it's a bit weird. It might lag a bit. Brad, do you have anything on that? Yeah, I'm going to skip ahead to my bull case and then you can skip me after because I think that that was a really good segue. They don't charge any. It's free to use for all these physicians. And so I kind of think that they need to start generating some ARPU from these physicians in order to gain the 5 or 10x market cap that people who own the stock today are expecting in the next 5 or 10 years. It's phenomenal that they've gotten this skill, but they've gotten it. So they're at 80%.

So I think now, like Ryan was saying, they can kind of turn on the funnel because it does seem like they're providing a lot of value. Or do some sort of premium thing. I would say it's almost unethical to charge people to be on the platform. Doc, the physicians? Yeah. Like, oh, you're not willing to pay? I guess you don't get access to the information that all the other physicians get. Well, I mean, the information is out there.

But if this is the best information sharing platform for physicians and you have a patient that you need to treat and you could have better access to information being on Doximity, but you have to pay to do it, there's a reason they went free. Well, yeah, I mean, I think there's many reasons. But is it unethical to have pharmaceutical manufacturers who have a vested interest in possibly giving them pills that might not be the best? I don't know. Is that unethical? Spending money on marketing, potentially. I don't think that's very much different than the system prior to Doximity. I think they could definitely charge, but it might not be in their best interest. They might not want to do it that way, but I think they could, unless I'm missing something.

I think they're on almost the same boat as Twitter in that regard. like is it is it i mean that's like you know is it ethical to charge for information you can do yeah i mean i don't think there's any ethic dilemma it's just business all right well it's just communication i mean this is they're not they're not hoarding the information the information if you have a patient that could die medical journals i believe and and scientific journals i believe cost a boatload of money for phds and stuff to subscribe to so if that's true then that's unethical all right well uh what are your highlights and lowlights um same as you guys i mean i think that network effect's obvious um yeah great history great efficient

use of funds and profitable i don't know there's not much else to say business there was no nothing on any of the income statement balance sheet or cash flow they all checked out really strongly um lowlights and it's similar to you guys it's market opportunity how much of a niche is this? I don't know. Have the easy, easy customers been captured? We'll see. Cause it seems like if you're already at 80% and now you've got to expand to these other ones that may be, it may, it's not a cinch to get them. I don't know. It seems like it could be a risk to their, their growth. But I got nothing else. The members of the pharmaceutical manufacturer, who are you talking about? Either. If they got the easy, you know, both, I mean, if they've captured all those,

they've captured all the physicians and now they're going to branch out to either international or different skill sets. I mean, it could be harder, but maybe not at this point, I would not be wasting marketing dollars trying to attract that. The rest of those 20% of physicians, if they haven't gotten on by now,

then no, that's what I'm saying. They're going to have to, if they want to grow users, maybe they don't, but you know, they're going to have to go. It's probably wasted marketing dollars if they haven't gotten on by now.

I know to the, to, to enter either international, that might take regulatory, but to the other skills. So that could be a difficult, you know, maybe the physicians, it was a perfect product market fit, but for these other skill sets, I guess I'm calling it skills. I don't know if it's the right word, but professions, I guess maybe that's more difficult and that could,

their growth rate could slow, but let's hit bull case. Brad, did you have anything else on your bull case? No, I think I covered it. You guys go ahead. All right, Ryan, what's your bull case? I think they have to do everything right to make the valuation feel warranted. Sorry if there's any Doximity shareholders that that upsets, but I mean, they have a really strong business with what they currently have, but I don't think it warrants a $10 billion valuation. And that doesn't mean they can't expand the TAM. I think there's a quote that says great management always finds a way to expand their TAM. That's what's going to have to happen here.

You have to add more members. You have to add a greater value proposition for advertisers, not only pharmaceuticals, but like sports equipment or work out. Physical therapy equipment. Yeah. Yeah. Anything like that. Or, I mean, it just has to be a much different business in my opinion. And it could be.

I think there are different verticals that they can go after that are like kind of adjacent or turn on different revenue streams like we were talking about. Yeah. Yeah. It, it just, uh, they, they have to find new markets for me. In my opinion, they have to find new markets in order to unlock the kind of cash that's needed to make the valuation warranted. Yeah. That makes sense. Um, yeah. I mean, we know the high valuation for me, the bull case, we know the high valuation is expecting high sales growth, high earnings

growth. But from a business case, from first look, it seems like for me, they need to pick up more from the non-court users like physical therapists, nurses, psychologists. I don't know how many of those there are out there, but I think there's a lot. Well, I know for sure there's a lot of nurses. And then you just need that strong expansion from revenue from non-advertising businesses like telehealth. But I also think there's a lot of easy ways to add on different services on top that it's hard to figure out because there's the insurance aspect and there's like the HIPAA compliance stuff. But I think there would be a really pretty easy to add those things on top if the physicians are using your app every day. But who knows? But let's go to bear case,

Brad, or what do you think could go wrong here? Yep. And I'm going to avoid saying the word valuation again during this bear case, because I think our listeners don't need to hear it from me again. But margins could erode as this competition comes online. I'm thinking back to Microsoft and Teladoc and Google and Apple and Amazon and all of these really deep-pocketed competitors are going to be chasing this opportunity because the opportunity is so lucrative. So if it can't, well, I guess if it can't compound at a rate of 35 to 40%, which is really, those are high expectations. I know maybe 2020 trained us to think that 100% revenue growth is a lock, but any company compounding above 35%, in my mind, is a hyper grower, and this needs to

do that. And so the bear case, because the business looks so strong, I have to go with the hypothetical bear case of margins eroding and the opportunity shrinking as or if these really deep pocketed competitors find market share. That makes sense. Brian. Yeah. I don't know if I see all of big tech getting into it, but yeah,

I guess the Microsoft Microsoft Apple doesn't teams have to be HIPAA compliant though. Yeah. I don't know what that means, but they probably, I feel like they probably are if they're working on Teladoc. Yeah. And we got,

And we have Amazon coming out with their price competing product and debuting telehealth services. So they're, they're definitely colliding. They haven't collided, but, but they're starting to merge more and more. Amazon has been making sometimes announcements and Amazon doesn't mean actual business developments, but that is true. There've been a lot of rumors in that case, or who wants to go? I was going to say, I feel like if a physician were listening to this, they'd be saying like

the overlap is minimal here. Cause I mean, yes, they compete with the telehealth stuff, but the newsfeed. and sort of the hiring and sort of the, I guess, careers avenue or the professional networking feels unique to them. Yeah. The network effect seems really strong. The core product that has no competition. I couldn't find any. Brad, what do you got? Yeah. I agree that the overlap is pretty small today. I just think maybe it could become larger over time. But also, I mean, Amazon tried with, was it Maven or Haven, something like that, that shut down with Berkshire that they were doing with Berkshire. They tried with drugstore.com

during the.com bubble that didn't work at all. And they had to shut down. So they had, they have a very mixed track record in healthcare because healthcare is so complicated and difficult to penetrate. So I have, I, the only, the only bear case I have is this hypothetical of this sort of long shot of them now, not long shot, but not, not a guarantee of them finding success in the area. That's what I have to go with. Yeah. And that's, and, and you were trying to force yourself to do business perspective there. And that kind of comes back to from a business perspective, it's hard to find a case for like shorting this from the business, you know, like the business being bad. The business is highly impressive, but that's why it trades at 50 times sales.

Ryan, what's your bear case? Well, I guess the bear case for me is that maybe these other verticals that we've talked about, the value isn't as high to them to be connected to the rest of the community like maybe nurses don't care to be that connected i guess um maybe the information sharing isn't as big of a deal in those fields um the other thing would just be that this isn't valuable enough in the advertisers eyes that i think at this point revenue has to 5x or 10x 10x as i mean i don't know what people think it's going to trade at maturity but i think 10x at least yeah so i just uh that gets back to the like why why hasn't the spend why isn't the spend already there from the advertiser side if they own basically the entire market yeah maybe it's just like they

haven't created enough monetization features yet uh i mean obviously the growth over the last year has been really good um and pharmaceutical companies are spending more uh each year but But I guess the bare case is that it's too niche and it doesn't deserve to trade. I'm not going to say valuation, but it doesn't deserve its valuation. Yeah, I'll hit maybe valuation quick. But I will say that, like I said at the beginning, this is the first time each of us, no one has looked at this before. So if you're an owner of Doximity and we just got some things wrong, please let us know. And please do not do it with hostility because we're just trying to learn as well.

I know we could have clearly made some mistakes there looking at this business. Can't take the heat. No, I just, if someone, if we got things wrong, please, please let us know. Because I think, I don't know. I just think we could have for sure. All right. For me, I mean, not all stocks trade at, you know, 40 to 50 times sales. And that's, I don't know.

There's not much else to say there. You're not allowed to say valuation. For Bearcase, I think, I thought Bearcase. But let's say you weren't allowed to say valuation. There's no, I don't think there, I don't think there is no bear case. I don't think this is really great. Okay. I can't find, I couldn't find anything else.

Yeah. I don't think there is a bear case on the business quality. I mean, margins could look at that margin structure. They could have 60. Yeah. 50 plus it could be Facebook level for sure. Google or Google is a little bit lower, but yeah. I mean, margin, maybe, maybe margins expand so much that, you know,

revenue growth doesn't have to be as high, but at 50 times sales, I feel like it has to be still be high, even if they expand margins. So are you more or less interested or why don't we start with Brad? Sure. More interested with the caveat, similar to the matter report caveat we had a few weeks ago where risk reward, I think will be better at some point in the next few years. And I will be watching this one like a hawk because the business looks so impressive to see if there's a more reasonable entry point. I really try to avoid valuation when making decisions on my investments, but this isn't 20 times sales. This is 50 times sales. This isn't a billion dollar market cap. It's a $10 billion market cap. So yeah, I'm not ready to jump in yet,

but I'm interested. Yeah, that makes sense. Ryan? Less. I'll say less because not being able to be on the platform, I have a hard time distinguishing how valuable it could be to in the eyes of advertisers i also uh and this might piss people off but i would almost put it in the too hard pile or the outside my circle of confidence because i don't know the relationships between the pharmaceutical manufacturers and how how they tend to get their products to those that are prescribing them that makes sense i think that if they have intertwined relationships that go beyond this platform and that's where they're spending most of their time and money, I would have no way of knowing. And so that's why I kind

of put it in the too hard pile. That's a bit of a hurdle to learn about. Yeah. I could, I mean, I don't, I don't think that's weird at all. Um, or like that makes sense to me. Um, I'd, I'm kind of on the fence. I'd say I'm slightly more interested. I mean, valuation is just so far gone for me at this point. And if you're someone that keeps that as an indicator of like, buy stocks that everyone says are overvalued. Maybe that means you should start looking at Doximity because people like us throw it away. But I don't know. Can't get around it. A little bit in the too hard pile because it is in a healthcare industry and it has these relationships with insurance, HIPAA, everything where it's hard to see where the competition is coming.

But man, this is a good business. All right. I think that wraps it up. Stock for next week. Ryan, what is your choice? Just eat takeaway.com. Just eat. Okay. Yeah. All right. That should be fun. They acquired Grubhub. We were kind of recommended the idea by a friend of ours this week. So yeah, that should be fun. One hit that industry. And it's a little bit of a different business model than like DoorDash or Uber, but it'll be fun to investigate that business. And that will be actually two weeks from now. So we're going to hit on the every other with Brad going forward. All right, let's hit the disclosure. Thank you all for listening. Remember, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan

and I are general partners at Arch Capital. Arch Capital clients may hold securities discussed in this podcast. Thank you all for listening again.