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Field Of Band Aids: Healtheon Tries For IPO

Healtheon is back at the IPO plate, taking a swing its second time at bat, some four months after its first attempt to go public that left it headed hitless for the dugout looking for an oxygen inhaler. This time around Healtheon is back trying to swing for the fences--but the Internet IPO pipeline has been active awhile now.

Same thing happened to Healtheon a few months ago. The IPO market was dry then heated up and suddenly there was an Internet IPO just about everyday for a brief time in July and October. Now there's a whole parade again.

This week alone we count several IPO hopefuls: Healtheon, Prodigy and VerticalNet. Already public are scores: MarketWatch.com, Pacific Internet, Infospace, theglobe.com, etc.

Healtheon HLTH
Pro forma IPO  
Shares out 59.42
Options 29.10
Fully-diluted shares 88.53
IPO price per share $ 7.00
IPO market cap FDS $ 619.69
Undiluted IPO mkt cap $ 415.96
   
Revenue  
9 months to Sept '98 $ 33.23
9 months to Sept '98 $ (35.86)
Annualized at that rate $ 44.31
Annualized at that rate $ (47.81)
   
Projected 1999 revenue $ 51.00
   
Revenue multiples  
using est. 1999 revenue  
IPO market cap FDS 12
Undiluted IPO mkt cap 8
all figures in millions, except multiples and share price

So timing may not be working for Healtheon's favor 100% this time around either. Too many issues. Add to that a broad market that's been correcting and cutting some of the bull off the top.

All that before we delve into just what Healtheon is trying to do as a business. The basic premise seems to be for the firm, which has been working on this since January 1996 to bring the efficiency, order, flow and distribution aspects of the Internet into the paperwork-ridden healthcare system. In a word, fix the babel-like world of healthcare.

Now anyone that's tried to get their insurance company to pay its bills on time (your claims), find your patient record, talk to you with a live person (and not a voice-mail menu), and in general act like a business knows and applauds Healtheon's goals.

This is the vision: "HEALTHEON'S VIRTUAL HEALTHCARE NETWORKS connect providers, payers, consumers and suppliers over the public Internet or private intranets, and provide services and applications that enable the secure exchange of information, transactions and simplified workflows across the healthcare industry. At the center of these networks is THE HEALTHEON PLATFORM, an open framework for providing mission-critical applications and supporting complex healthcare transactions, while at the same time ensuring scalability, availability and security."

The reality is four customers generated more than 90% of Healtheon's $33.23 million revenue for the nine months ending September 30, 1998 and most of that came through ActaMed, which Healtheon acquired May, 1998. It provides network technology to healthcare providers and jumpstarted Healtheon in that market. In August 1998, Healtheon acquired Metis, LLC, which creates Internet and intranet-based solutions for medical centers.

Between the two buys we think we see the future of Healtheon, and that is as a consolidator of already small but successful medical and healthcare-focused networks, Web sites and services to this sector. Meanwhile it deploys its Internet-based vision that the healthcare system doesn't seem to share at this juncture, preferring band aids to cures for the disparate and disorganized and hugely inefficient healthcare system.

As such from an investment point of view we think Healtheon's field of dreams currently looks more like a tough field to plow. If it succeeds then it will have created the equivalent of the digital nervous system for the 21st century healthcare system, tying together insurance, doctors, patients, records, billing systems into its platform. Right now that's a big "if" in our opinion.


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