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Talkspace Investment thesis $HEC (Soon $TALK)
A summary of the trade thesis. Okay this ones a SPAC so it might be looked down upon but this is exactly why I like the stock. A good trading thesis these last few months has been
1. buy a post deal SPAC <15$ with rosy projections accelerated by the pandemic. 2. wait for it to hit 20$. 3. Profit. 4. Repeat. 5. go to the moon. Examples, $CURI, $SSPK, and $HIMS to name a few.
Talkspace fits neatly into this category. It is a behavioral health company that operates an online therapy platform connecting therapists and patients: Large TAM: check. Hypeable: check. Rosy projections: check. Accelerated by pandemic: double check. Latest stock price: ~12.00 as of Feb 8th.
I also believe the company could be a good longer term play making buying it even more compelling.
I encourage everyone to look at the company presentation here which explains their market opportunity and growth: Presentation
They have two segments: B2B and B2C. The active members for the B2C grew 40% and B2B covered lives grew from 2 million first quarter 19 to currently. Active providers doubled from Jun 19 to Nov 20 from to over 2,600.
68% of all patients improve or remit over the course of 1.5-3 months showing some effectiveness. Revenue grew 61%, 33%, and 94% in the 2018, 19, and 20 respectively. The growth levers are a continued awareness of mental health, increase in the numbers of people needing treatment and more B2B customers.
How does the product work?
For patients: People fill out a form, get a list of providers, and choose one. You are able to text and meet with your therapist at your convenience with no obligation to meet in person. The value proposition and experience for consumers is straightforward: it is a more convenient to access therapy. The downsides highlights in various internet blogs are a lack of access to preferred therapists and inadequate responses from therapists on the platform. However, as more therapists join and there are more options, these issues will resolve themselves.
For providers: Once you sign up, it takes ~4-6 months to go through the onboarding process of training and verification. This is a long time compared to another competitor in the space Betterhelp, but it serves two purposes. It ensures commitment from therapists and it verifies that therapists know how to effectively communicate digitally. The value proposition for therapists is that they have access to a large group of patients to augment their revenue stream and grow their following. Talkspace takes care of all of the marketing and provides therapists easy access to patients. As younger patients flock to online therapy platforms, therapists will realize that the most effective way for them to create connections. This introduces a risk of ‘showrooming’ where therapists join, acquire patients, and immediately take them offline. The potential for this happening isn’t as high a one may think because Talkspace facilitates a therapy pathway that many patients enjoy: asynchronous therapy. That is here to stay. Some downsides for providers are a lack of worksheet integration, mandatory diagnosis, and an inability to reject patients or the 'reply by' feature which ensures a therapist will respond by a certain time. However, these are even more fixable than the issues faced by patients. As the product is iterated, it can get better. Source: this podcast
It has multiple advantages over the traditional therapy model:
Scalable business model: The entrenched nature of healthcare obscures that Talkspace is at its core a marketplace. It matches providers and patients for behavioral health services. As with any marketplace, the ultimate goal to have a product (therapy) that fits the consumer (the patient). As more providers join Talkspace, the options will increase for patients, thus encouraging more patients to join the platform. The large number of patients entices providers to join the platform and make more money and on and on and on…..
An inflection point: The nature of the pandemic created inflection points in a lot of industries and online mental health is one of them. While revenue growth was slowing at Talkspace, the pandemic hit and it immediately reaccelerated to 94%. For some industries, a switch like this can be temporary, but for online mental health, the crisis likely instilled some permanence. People and businesses are realizing the importance of mental health and remote therapy can be an effective augmentation for in-person interaction. In addition, as more companies add these services, mental health is something that employers will be required to have. It won't be seen as a luxury, but as a base feature of any employment plan.
Management: The company is still founder led and led by a husband and wife pair that wanted more from therapy. You can hear their story here. They have an experienced management team from various industry sources combined with passionate founders.
The Thesis: projected revenue from 2020 to 2023 is expected to grow at a >50% CAGR and the company expects to turn EBITDA profitable in 2022. With the influx of cash from the SPAC deal, they have the runway to sustain growth.
We can debate about the rosy projections and the potential for behavioral health all day but the short term thesis doesn't revolve around that. Put simply, it is valued at ~ half the EV/Revenue multiple as TDOC at 11 times forward revenue and is growing at a similar (actually slightly faster) rate. As people discover the stock, the ticker changes, and the deal closes, the multiple should rerate thus raising the stock price. As a short term trade I would trim gains at 20 and wait for a 3-5 day period with limited volatility to sell out the rest.
The eye test: If you zoom out and look at behavioral health and the shift to online services, how much is the best platform for those services worth? Helluva lot more than 1.5B market cap if they can make it work.