Forget LinkedIn, Twitter, Facebook and Instagram. There’s another network of professionals that has investors buzzing. A doctor network. And best of all, you don’t have to be a doctor to get in on the action of this publicly traded company.
Doximity (DOCS) has long supported medical professionals, providing an online networking platform. This telehealth platform is the largest community of healthcare professionals in the United States. Its verified members include over 80% of U.S. doctors and 50% of all nurse practitioners and physician assistants — which some argue is a double-edged sword. Market saturation can be an issue within such a specific market… how will it grow?
Being a semi-exclusive social media platform, members can leave comments. However, they cannot upload their own content. Doximity is often compared to LinkedIn, as both networking platforms share several similarities.
The key difference is Doximity’s focus on one segment, which yields highly engaged, valuable members. Among professionals, physicians are a prized network because of their purchasing power.
While the platform is free for physicians to use, the company pulls in revenue via productivity applications that users must pay for. And that translates to attractive financials.
Doximity’s Strong Financials
Several tech giants reported declining ad revenue last year, but not Doximity. Despite this challenging period for advertising businesses, Doximity reported total revenues of $93.7 million in Q4 2022, up 40% year-over-year and $343.5 million for FY 2022.
The company achieved a net income margin of 39% for the quarter and a 49% margin for FY 2022. These margins are encouraging for investors, not least because Doximity is already profitable. In FY 2022, net income was $154.8 million, compared to $50.2 million for FY 2021.
Solid earnings have continued into 2023: Q2 total revenues hit $102.2 million, up 29% year-over-year. While net income did drop, the margin remained healthy at 26%. In addition, free cash flow increased to $37.7 million, compared to $18.1 million in the same prior period.
While Doximity’s share price has been elevated in the past, many investors have chosen to ignore the company’s high multiples believing strong fundamentals will justify the premiums.
Is Growth Slowing?
Since Doximity went public, revenue growth has slowed. As the target market becomes more saturated, this is a genuine concern. While Doximity offers a valuable platform, it must create new products to monetize its members. If it doesn’t, Doximity risks multiple compression stemming from lower margins.
The competition is another challenge. The big gorilla, Microsoft, owns LinkedIn. If Doximity proves sustainable, Microsoft could launch its own healthcare-related service. Just as Microsoft took on Slack with its own product, Teams, so too could it potentially threaten Doximity.
Bulls would argue that the value of a branded doctor network cannot easily be competed with by LinkedIn, and they’re probably right. So odds are if Microsoft wanted to compete, it would likely acquired Doximity outright and capture the 80% share of doctors already in place.
Should You Buy Doximity Today?
Doximity began trading publicly on June 24, 2021. Since then, shares have dropped by 43%. Despite that, they are still expensive.
Undoubtedly, Doximity has immense potential, but it may not be enough to take a bet on just yet — especially if you’re a reasonably risk-averse, long-term investor. Still, we see 26% upside to $40.65 fair value.