Amwell growth slows in Q1 amid investor fears of telehealth deceleration

By | May 13, 2021

Dive Brief:

  • Telehealth giant Amwell saw a rise in revenue and visits in the first quarter, but its growth is decelerating from 2020, bolstering market fears about the sustainability of the virtual care boom.
  • In quarterly results released aftermarket Wednesday, the Boston-based telehealth vendor beat Wall Street expectations on earnings but missed on revenue. Its topline was $ 57.6 million, up 7% year over year, spurred by subscription and digital revenue growth. In comparison, Amwell notched 34% year-over-year growth in the fourth quarter.
  • Similarly, Amwell’s total visits of 1.6 million were up 121% year over year, paling in comparison to the 351% growth seen in the fourth quarter. Shares fell more than 5% in postmarket trading Wednesday, amid widespread concerns about slowing growth in the telehealth market.

Dive Insight:

The virtual care market grew exponentially last year as demand for digitally delivered care snowballed due to the coronavirus pandemic, resulting in historic funding in the sector that continued in the first quarter.

However, many market watchers are concerned about a potential telehealth deceleration as state lockdowns ease and vaccinations continue, with some arguing virtual care is a stay-at-home phenomenon and not sustainable post-COVID-19.

Early data suggests slowing utilization this year, and investors seem to be taking note. Teladoc’s stock has fallen almost 31% year to date, while Amwell is down almost 54%.

Rebecca Pifer/Healthcare Dive, NYSE data

Vendors are looking for new arenas to drive growth and convince the market their service is here to stay, including specialty and primary care, and are investing more in technological functions as a result.

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Amwell sees its new Converge platform as a key area to expand market opportunity, CEO Ido Schoenberg told investors on a Wednesday call. Unveiled in April, the cloud-based platform integrates Amwell’s services to allow for more longitudinal, data-driven care in a single access point, and can host other third-party apps.

Apps “open a new revenue stream for Amwell,” Schoenberg said, noting the company plans to share more details on its planned business model for apps later this year.

Amwell’s gross margin was 38.0% in the quarter, compared to 38.5% in the prior year period. The lack of gross margin expansion, despite a higher subscription revenue mix, was due to the migration onto Converge, which will continue across 2021, Credit Suisse analysts said.

The 15-year-old company reported a net loss of $ 39.8 million in the quarter, compared to $ 25.2 million the same time last year. That wider loss is partially a result of increased R&D investment in the Converge platform, management said. R&D costs were up 54% year over year in the quarter.

And spending on Converge will pick up across the year with higher investment in the platform, and heightened marketing around the product, management said.

But “​we feel confident that our investment in Converge will have significant positive multiyear impact on our financial performance starting in 2022,” Schoenberg said. The CEO noted Amwell expects Converge to increase client retention, attraction, addressable market and upsell opportunities.

Amwell, like other vendors, is seeing its visit mix continue to evolve towards more specialty services, including mental health as the pandemic continues to stress conditions like depression and anxiety. Schoenberg said the company saw a “significant” increase in behavioral health visits, which drove the average price per visit to the low $ 80 range, up from $ 73 last year.

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Following a year of mounting demand for virtual care, 2021 has seen a number of high-profile deals and M&A in the sector, raising competition in the lucrative space. Those include Cigna’s acquisition of telehealth provider MDLive; virtual care provider Doctor on Demand’s merger with clinical navigator Grand Rounds; Amazon’s expansion of its virtual care program nationwide; and Walmart’s snap-up of telehealth provider MeMD.

Schoenberg called the competition “fierce” on the call, but maintained Amwell’s experience and heft gives it an edge over newer entrants.

“In order to create an enabling platform that is fully embedded with lots of other platforms that is covering the full health care continuum, it takes a decade and a half, it takes over a billion dollars of institutional investment to create something that enables that,” Schoenberg said.

Following the results, Amwell reiterated its full-year guidance. The vendor expects to bring in revenue between $ 260 million and $ 270 million. By comparison, Teladoc — which bumped its outlook following the quarter — expects to bring in between $ 1.97 billion and $ 2.02 billion in 2021.

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