Talkspace To Outer Space?🚀🚀🚀
New Portfolio Pick!
What is up Cruisers?!
For any new readers, we provide brief and entertaining market analysis (stock spotlights, educational pieces, financial news) for the next generation of long-term investors. We like to think that if Warren Buffett was born in 2000, he would read Cruising Altitude.
Let us jump right in!
🔍SPOTLIGHT
Let Us Talk About Talkspace!
Background
One of the industries that has seen explosive growth from COVID-19 is Telemedicine. We at CA wrote a piece a few weeks back on portfolio pick Teledoc $TDOC and how they were poised to benefit from this thematic trend.
Mr. Market is making us look good as the stock is up a solid 51% since we added it to the portfolio on 11/17/20.
Remember- do not analyze the quality of an investment over a period of few weeks, but rather a few years.
Our thesis would be the exact same on $TDOC if the stock was down 50% instead of up 50%.
One area that has also, for better or worse, received more attention during the pandemic is mental health.
This is good because many more people are being motivated to get the help they want or need.
This is bad because people need more help than ever before due to a confluence (big word) of factors including isolation, loss, and change from the pandemic. COVID-19 has also piled onto already existing issues that have been created in the modern mind due to social media and smartphones. (Yes. At CA you get both stock analysis and sociological analysis😉)!
Once we identify trends, we at CA like to research companies set to benefit from these tailwinds.
Through our research process, we came across Hudson Executive Investment Corporation $HEC, a SPAC taking the innovative teletherapy company Talkspace public.
Talkspace
Let us take a deeper look into Talkspace and how they are disrupting the psychotherapy industry:
Therapy sessions are conducted over a video conferencing platform.
Therapists and patients can communicate daily in between sessions via a messaging platform.
The costs of Talkspace are SIGNIFICANTLY cheaper than classic therapy options.
Science
Does a mix of messaging/video therapy work? The science says a powerful YES.
Talkspace has participated in 10 peer reviewed scholarly studies that show strong results. In one study specifically, almost 11k patients using their platform participated. 68% of participants suffering from generalized anxiety disorder or clinical depression saw improvement or remission of symptoms. As we said above. Powerful.
The 68% success rate puts the Talkspace approach right in line with classical psychotherapy.
A form of therapy at a significantly lower cost is a huge win for humanity. This is something to celebrate!
Financials
Let us jump into a brief overview of the financials:
Talkspace is going public at an enterprise value of $1.4 billion.
They did $38 million of revenue in 2019, $75 million of revenue in 2020, and 2021 revenue is expected to be $125 million.
Gross profit margins have also grown from 49% in 2019, to 51% in 2020, to an expected 63% in 2021 (where the company expects the number to plateau).
One of the main reasons that CA is so excited about $TALK (the company ticker will change after it merges with the SPAC) is that you do not see a company growing this quickly in such a rapidly growing industry trading at such a low multiple—11x 2021 expected sales. For comparison, Teladoc $TDOC and Amwell, two Telemedicine companies, are valued at 21x 2021 expected sales and 23x 2021 expected sales, respectively.
There are also 4 other “golden nugget” reasons why we are excited about this company:
46,000- Talkspace was able to achieve $75 million in revenue on just 46,000 customers. With $125 million in 2021 expected revenue it is clear that Talkspace feels that they will continue to rapidly grow their stake in the TAM-Total Addressable Market (for more on TAM check out our educational piece towards the bottom of the newsletter).
Insurance & B2B Sales- Talkspace is a dream come true for insurance companies and corporations. With increasing demands for therapy coverage in insurance packages, offering Talkspace coverage for insurance companies is a no brainer due to its effectiveness at a low cost. Talkspace now has more than 39 million Americans covered through deals with corporations and insurance companies like Google, Accenture, Blackstone, Cigna Health, and many more.
Side note- as an investor, it is always awesome to say that top-notch, mainstream companies give their stamp of approval on a possible investment.
Dreaming Big- In their investor presentation, Talkspace discusses how they are dreaming big. Once they disrupt the teletherapy space, they do not want to stop there. They have aspirations to create many different streams of income that will build off of their existing teletherapy platform including sleep wellness and chronic pain management.
Newcomers- A really cool stat that Talkspace shares in their investor presentation is that 60% of Talkspace users are going to therapy for the first time. This is a powerful number that shows that people view Talkspace as a casual and convenient way to care for their mental health. If Talkspace can become a place where people use the platform as mental health assistance for tough disorders, as well as casual maintenance, this can be powerful.
A Drop of Concern
Talkspace might be sounding pretty rosy to you currently and that might make sense as we have shared some very exciting information. As you will see in our “new look” portfolio below, we have color-coded our holdings.
Talkspace is classified as a yellow company “a stock that we like but have some concerns about” due to some information that was released in a New York Times article a few months back that heavily criticized Talkspace’s culture.
We are aware of this and are monitoring Talkspace closely. As the company has grown, they have continued to bring in strong, outside managers (in our eyes) to improve the culture and become a more professional and more ethical company.
Conclusion
With the thesis now being clear, we are very excited about the $HEC/$TALK opportunity.
They are a company with an awesome product looking to disrupt an industry that is craving disruption. Most importantly, the success of Talkspace will likely mean the improvement of many people’s mental health.
For humanity, that is a dub. And therefore, for CA, this is a dub.
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” Column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “We are really pumped about this stock”
🟧Orange= “We like this stock”
🟨Yellow= “We like this stock but have some concerns about this stock”
🟥Red= “We no longer like this stock and it will likely not be in the portfolio next week”
As always, for live updates click here!
📰STUFF YOU SHOULD KNOW
This Week
General News
🍺 Taxis, Food, and Alcohol. This Tuesday, everyone’s favorite ride sharing/food delivery service, Uber $UBER, announced a deal to buy alcohol delivery company Drizly for $1.1 billion in cash and stock. Drizly’s on-demand alcohol delivery service is already available in 1,400 cities and will soon be integrated with the UberEats app. Now there’s a reason to use Uber before you get drunk.
👋 Amazon is Movin’ On. Amazon $AMZN CEO Jeff Bezos (the second richest man in the world behind Elon Musk) announced that he’s stepping down as his company’s chief executive and ceding power to Andy Jassy. Bezos will stay with the company as executive chairman and focus on long-term projects.
📉 Has WallStreetBets Stopped Betting on Wall Street? After creating impressive gains in stocks such as GameStop $GME and AMC $AMC last week, Redditers have not fared so well this week. GameStop $GME closed at $92.41 yesterday after reaching heights of over $400 last week. Washington has gotten involved in the GameStop $GME saga as the House Financial Services Committee will hold a hearing on the incident on February 18th.
📕LEARN
Total Addressable Market (TAM)
Total Addressable Market, commonly referred to as TAM in the business world, is the term for the total revenue opportunity for a given product or service. Both startups and existing companies need to identify the TAM for their products of services in order to determine their ideal investment in that product or service.
Think of it this way, if you open a lemonade stand, the TAM would be the number of people in the world who want lemonade. Knowing how big the revenue from that market is would allow you to answer a few questions. Is there enough available revenue for me to make money? How much money and time should I invest in this company? Are there already too many competitors in the industry? These are just some of the questions a business may ask itself when evaluating the TAM for a new product or service.
So why does this matter to me as an investor? Well, by looking at the TAM for an industry, an investor can gauge the prospects of a company. For example, if the TAM for a new company is only $10 million a year, it might not be worth it to invest $10 million in a company. Market share is also important to consider here. If the TAM of an industry is $1 billion and existing companies already bring in $990 million in revenue, there is not much market share available. Alternatively, if there are no competitors in the space, the company could potentially bring in a substantial amount of the TAM.
As you can see, TAM is an extremely important aspect of business that should be considered when investing.
💯Insightful Quote
