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Livongo: Digital Health Platform Of The Future

Jun. 12, 2020 4:44 AM ETLivongo Health, Inc. (LVGO)40 Comments
Richard Durant profile picture
Richard Durant


  • Livongo's growing member base can be used as a platform for a broad range of health services in the future.
  • The high return on investment for clients is likely to drive widespread adoption, particularly as these types of services gain increased acceptance.
  • The company is well-positioned to succeed, provided that it can continue to increase enrollment amongst client employees and reduce member churn.

Livongo (NASDAQ:LVGO) is a digital health services vendor which provides clients with solutions that enable members with chronic health conditions to better manage their condition. While Livongo’s services are relatively simple, they drive better health outcomes for patients and reduce healthcare costs for clients, making it likely that these types of services will become widely adopted in the long run. The share price has more than doubled in recent months and the company's EV/S ratio is relatively high, but I believe the stock is still attractive due to Livongo’s large market opportunity.


Healthcare costs are a large and growing burden in developed countries, driven by high inflation in healthcare costs along with lifestyle factors (diet and exercise) and aging populations. Over the past five years, the average annual deductible among all covered employees rose by 53% to $1,350, which is not sustainable in the long run.

Figure 1: U.S. Inflation by Category 1997-2017

(Source: MarketWatch)

In 2014, approximately 60% of U.S. adults had one or more chronic conditions and over 40% had two or more chronic conditions, with chronic and behavioral health conditions accounting for 90% of healthcare spending. Chronic conditions include diabetes, hypertension, obesity and depression.

Figure 2: Relative Cost of Chronic Conditions

(Source: Livongo)

A 2018 Milken Institute study indicated chronic conditions collectively cost the U.S. economy approximately $1.1 trillion in direct healthcare costs and an additional $2.6 trillion from lost productivity. Diabetes is a growing problem in the U.S. which currently affects over 7% of adults and costs the healthcare system in excess of $237 billion in 2017, with an additional $90 billion lost due to reduced productivity. In addition, 27% of U.S. adults have prediabetes, putting them at elevated risk of developing diabetes if their health is not better managed.

Figure 3: Prevalence of Chronic Conditions

This article was written by

Richard Durant profile picture
Richard Durant is the leader of Narweena, an asset manager focused on finding market dislocations that are the result of a poor understanding of a businesses long-term prospects. Narweena believes that excess risk adjusted returns can be achieved by identifying businesses with secular growth opportunities in markets with barriers to entry. Narweena’s research process is focused on company and industry fundamentals with the goal of uncovering unique insights. Narweena has a high risk appetite and a long-term horizon, in pursuit of stocks that are deeply undervalued. Coverage tilts towards smaller cap stocks and markets where competitive advantages are not obvious.Investments are driven by a belief that an aging population with low population growth and stagnating productivity growth will create a different opportunity set to what has worked in the past. Many industries are likely to face stagnation or secular decline, which counter-intuitively may improve business performance if competition decreases. Conversely, other businesses are likely to face rising costs and diseconomies of scale. In addition, economies are becoming increasingly dominated by asset light businesses, and the need for infrastructure investments is declining over time. As a result, a large pool of capital is chasing a limited set of investment opportunities, which is driving up asset prices and compressing risk premia over time.Durant has undergraduate degrees in engineering and finance from the University of Adelaide (Honors) and an MBA from Nanyang Technological University (Dean’s Honors List). He has also passed the CFA exams.Durant also publishes musings on technology and its long-term impact on economic development on Substack (http://richarddurant.substack.com).

Analyst’s Disclosure: I am/we are long LVGO. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (40)

from VIC:
Management pitches the company to investors as a high-growth, SaaS-like “AI” platform. In reality, the company sells a basic, low-tech device (which they do not even manufacture) with its “artificial intelligence” amounting to sending automated messages to users (e.g., someone with low blood sugar might get a message like “Jenny, please drink some orange juice”).
Good short write-up now available to nonmembers at VIC.
Rubenslash profile picture
@steve1606 Do you have a link?
mlvSA profile picture
latest fireside chat ,for those interested.
Great article. Thanks. What would be a decent entry-level for a long position?
Rubenslash profile picture
Just buy it now. Stock should be considerably higher over the next years, so why wait and risk never buying?
Irnest Kaplan profile picture
I just watched a video on boostrapping in America (dont have the link unfortunately)

The CEO Glen Tullman explained the origins of the company and their vision going forward. It made a great impression on me. This CEO seems fantastic. He understands the space well. And his son has diabetes so this man has a passion for it.

I think this company is onto something big.

Yes they will have competition but I think the headstart they have will serve them well. And this is just the beginning of the way technology intersects with ongoing healthcare. Lots of market room for many players IMO.

If they keep on growing I think they will eventually do much better than most will predict currently.

Am long $LVGO but I do think this is an amazing company in a very exciting space.
The Bull-y Investor profile picture
Great article.

If you're open to sharing, what are the inputs you used for that DCF which returned $130 per share? My own DCF showed a value of $60-$65, though I personally think my Terminal Value is too low. Thanks!
Stefan Redlich profile picture
Look like this stock could be going to the moon if you have patience. The best is surely yet to come.
17 Jun. 2020
One of the best and most comprehensive research and analysis I have ever seen on a company. Good work - it really helped me evaluate LVGO
On the final chart (Figure 24 at the end of the article), please tell me the name of the company to the right of Livongo that has 140% revenue growth. Thanks.
The Dividend Dog profile picture
Currently a $6 billion dollar company. Do you think it might someday be, $20 billion? $50 billion? I see no reason why that is not possible years from now...
I can easily see $20B in 2-3 yrs from now.
nsei profile picture
14 Jun. 2020
Great, informative article. Thank you!
Freigeist profile picture
I like that. An article where the author has skin in the game. Thanks for the research. Will be monitoring on my watchlist.
12 Jun. 2020
Nice article. The 2% monthly churn isn't as bad as it looks. IIRC, they have commented in the past that the majority of that is due to employee turnover. If we assume most companies turnover at least 10% of their employees annually, then it makes sense that the majority of churn isn't due to dissatisfaction with LVGO. However, I do agree level of patient engagement with the service is unclear.
Irnest Kaplan profile picture
Good point - you are right @10x10

I saw in one of their SEC filings that about 70% of the churn is from employees leaving their company.

So although that's still churn its not dissatisfaction with the product.

I wonder what happens if the employee wants to leave their company but insists on continuing to use Livongo's product? I wonder if the employee can pay for it directly? Interesting...
Rubenslash profile picture
@Irnest Yes, that's possible. They do have some direct individual customers but it's a very small pct of revenue.
Trying to Make It profile picture
Good Article thank you for the research.
kthor profile picture
This has potential ...bought a little position @$55 ..might have overpayed now but I see a future in this..
Stock is at $60. You didn't overpay
Stock has an incredible future ahead. You didn’t overpay. Just sit back and enjoy!
grok42 profile picture
Hi @Richard Durant,

An excellent article, particularly the competitive analysis across the different companies in the sector. It is hard to tell if LVGO has a moat. It would also be useful to get a longitudinal view of LVGO's results over time, although they have not been in business all that long which limits that analysis. But the idea here is whether their health results getting better over time per customer.

It would not surprise me if health insurers adopt the approach car insurance companies have where the driver is electronically monitored and good drivers get reduced rates.

The market is so huge I suspect the big dogs (Apple, etc) are going to compete very hard in this space. Samsung, Apple, Fitbit, etc may end up with an edge as they already have smart watches tracking pulse, activity levels, etc. Some I think can incorporate weight from wireless scales. Not much of a stretch to include wireless blood glucose monitoring, blood pressure, etc.

My guess is the winner will be the company that can make the whole process more seamless and effortless for the customer. An even more important competitive differentiator might be an AI that learns from the vast amount of data collected as to which approaches have the best outcomes over time.

The chart of obesity vs income was really interesting. As you discussed, it may be Apple has the best customer base for this type of product.

Anyway, great article. Thanks a bunch. Grok42
Irnest Kaplan profile picture
Thanks for your comments @grok42

I actually retweeted this article on Twitter - and having a discussion there with some growth investors. You can see my timeline (tweets and replies) My twitter is IrnestKaplan.

Just a couple of comments:

I love your comments about Apple and the watch - and it not being a stretch to include wireless connectivity to a glucose meter. You say obesity vs income suggests Apple has a good market - but look at @Richard Durant 's chart, Obesity is correlated with LOW income, not high income - and Apple is HIGH income. So I dont think that makes sense to say Apple has the best customer base. I think Apple has a good potential customer base - but not because of that graph.

The issue for me is to understand the forces at play here. And the reasons why this product is purchased.

I think what makes Livongo successful is they are actually selling to companies, not individual members. I can't go buy their product from their website. They are selling a way for self-insured companies to reduce their health costs. I.e. saving them money. And the company probably pays for this on behalf of the member (or a portion). I'd love to know how this works. Does the company subtract the amount from the employee's paycheck?

If you try sell this product to individuals I think it's a harder sell. Why should an individual that is pre-diabetes go to the trouble of doing the right thing and buy this solution. Some will but most probably won't. Very few people see the longer term benefits of changing their behaviour slightly - they want instant gratification. Nothing exciting about getting a glucose meter and knowing you have to check your sugar regularly by pricking your finger.

That's why I think this product is better aimed at self-insured companies or the medical insurance companies themselves.

So by extension the competitors that market themselves directly to consumers are in my view not to be worried about too much from a Livongo perspective.

I have looked at the competitor that Richard Durant thinks is their main competitor - Omada Health. I can understand why. Just spend a minute on their website and Livongo's website. The Omada website seems better and clearer to me - easier to see what the benefits are.

I think this is going to be a race to sign up as many companies and insurers as possible. If Livongo can grow fast over the next 3 years then I doubt anyone will catch them soon unless their product fails.

Very exciting space indeed
Irnest Kaplan profile picture
Follow on question from my above post

What percentage of companies in the US are self-insured versus use a medical insurance company?

Or said in another way, what percentage of employees in the US are covered by their company versus by a medical insurance company? And which way is the trend going?

I haven't read LIVONGO's SEC filings in detail (just squizzed some parts) to see if this kind of macro market info is in there?
I appreciate your more global view. Do you own LVGO? I was early at 22 and got back in at 39. I never got a full position but thankful for the profits. Thank you
12 Jun. 2020
Great analysis. Very broad in scope from NPS to competitors to SWOT.

Valuation is a bit rich after the last earnings report. But definitely looking for any pull backs to initiate a long term position.
sportssam8 profile picture
Great detailed article on Livongo. I am long the stock, and expect more great things to come for $LVGO.
Irnest Kaplan profile picture
That was an EXCELLENT overview of Livongo @Richard Durant !
Thank you very much for all the effort
I particularly liked the discussion of the competitors -

Fantastic analysis, well done

The part that concerned me a couple weeks ago on Livongo was looking at the reviews on FaceBook. I know these tend to be negatively biased - but I saw several comments complaining that their tech wasnt working. Some further searching and I saw comments about their glucose meters not being reliable with the mobile connectivity etc.

The other thing about this company that makes it very different from other SaaS companies is the massive logistics required to get the physical meters to the members and their glucose strips. I suppose that is good in the sense that it makes it harder for competitors to break in - but the downside is that all the logistics costs money.

The part I dont understand about Livongo is their value proposition. And its probably because I just don't understand the space well enough. So are they proposing to save the employer money? As opposed to what? When they talk about a self insured employer does that mean the employer would typically pay for the healthcare of their employees? So in the case of a diabetes employee, they pay for a visit to the diabetes specialist? And with Livongo, there are less such visits? Am I understanding it correctly?

As a final comment, who is losing from the Livongo solution? The diabetes specialists? The hospitals and other healthcare providers? I just dont understand the bigger picture well enough.

But your analysis has helped me tremendously, so thank you for that!
mlvSA profile picture
i think some of the answers to your questions can be found on, fireside chat with Jennifer Schneider on Youtube. she is fascinating speaker.
Irnest Kaplan profile picture
Thanks very much @mlvSA
Not sure what fireside chat is - but I will try find out - I assume I can access that on the Livongo website?
CalStocks profile picture
Just search that phrase on youtube, livongo fireside chat and you will see it
mlvSA profile picture
nice overview of the competitors and well written article on lvgo. thankyou!
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