Everyday Health Is Just Getting Started

| About: Everyday Health, (EVDY)
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Good quality enviable assets in the healthcare space offering different engagement tools, data & analytics and CRM to consumers and physicians.

Continues to deliver on original thesis discussed in previous notes, with Tea Leaves and What to Expect improving the thesis.

Trading at a discount to WebMD, the stock may close the gap as the story gets wider coverage.

Having been bullish about Everyday Health (EVDY) for a while, as reflected by my previous notes on the name, here and here, the latest quarterly results were a nice reiteration as well as check on the progress of the business towards becoming a premier marketing & communications platform for healthcare marketers, the broader health of digital marketing budgets and execution in terms of developing performance-based solutions.

And looking at the fundamentals, the company seems to be making a consistent progress on positioning the business to monetize the favorable trends, but relatively, the name continues to trade at a significant discount to peers like WebMD (NASDAQ:WBMD), partly due to investors' concerns over the health of the consumer advertising space in general, expected to be close to 57% of the total revenue. The Professional revenue, almost 36% of the revenue, growing at almost 20%, and payer/provider revenue, almost 7% of the total, growing near triple-digit rates should more than compensate for the slow growth, i.e. mid-high single digit, of consumer advertising to deliver a consistent double-digit revenue growth.

The upcoming Analyst Day should highlight the growth catalysts, like the Tea Leaves and What to Expect properties, improving fundamentals, and shifting end-market mix towards faster-growing segments, including hospitals, the revenue for which may grow at more than 50% over the next few years. While the Analyst Day may improve visibility, the decent balance sheet and good cash flows, with free cash flow improving 25% during last quarter, should help attract a better trading multiple than the current 9-10 times forward earnings.

Things continue to improve, as outlined in the original thesis

The thesis that assets like an integrated platform that offers access to consumers as well as physicians via different engagement content & tools, data & analytics and CRM should be able to create value for the shareholders continues to stay relevant.

Most metrics related to platform reach and depth, growth in the gain-sharing model, success in the hospitals channel and solid position in catering to the specialty drugs segment still support a decent double-digit topline growth rate and profitability to match, as highlighted by the guided 12% growth rate and adjusted EBITDA margins of close to 19% for the current year. Indeed, the number of professional brands that the company worked with increased by more than 40%, physician registrations are up 25% during the first half of the year and engagement with physicians increased by 15%, besides signing a new three-year enterprise deal for CRM services with a top five U.S. hospital system.

The sentiment should get a further boost from strong Tea Leaves and What to Expect

Looking at the progress, properties that seem well positioned to deliver a positive surprise on the revenue growth front are Tea Leaves, which is the hospital CRM product that the company acquired last year, and the What to Expect property.

With hospital systems adopting data-driven CRM solutions, there is a nice tailwind for Tea Leaves and the company's recent three-year deal with a top five U.S. based hospital system seems to reiterate the same. Given the usual six months' lag between the deal signing and the recognition of revenues, revenue momentum from the business should start picking up from next quarter onwards. Indeed, the halo effect itself may help strong CRM sales attract more advertising revenues down the road.

Looking at the metrics, with visits up 32%, registrations up 27% and 50% of pregnant women in the U.S. registering, the What To Expect property seem to be getting positioned as a leading property in the space, and it should not be difficult to surmise that advertising revenues may eventually follow the strong traffic growth to the site.

Disclosure: I am/we are long EVDY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.