Benefitfocus (BNFT), which operates a cloud-based platform, got off to a roaring start as a public company Wednesday. The deal was priced at $26.50, which was above the $21.50 to $24.50 range. And on the first day of trading alone, the shares more than doubled to $53.55.
Benefitfocus has a suite of applications that help employers and insurance carriers more efficiently enroll and manage benefits, such as for healthcare, dental, life and disability insurance. The rules and regulations for such things are mind-numbingly complex — a reality that will probably will never change. But the mission of Benefitfocus is to simplify the process.
A big part of that goal has been centralizing all the information in the cloud, making it accessible via the web and mobile devices. The platform also has a network of over 900 benefit provider data exchange connections. All this has turned into a nice business for Benefitfocus. Keep in mind that it served over 20 million consumers as of mid-2013, and had contracts with 348 large employer customers and 34 carrier customers in 2012.
As a result, the company’s revenues have been strong, going from $68.8 million in 2011 to $81.7 million in 2012 — a solid increase of almost 19%. The bad news: The company is still operating at a loss. Last year, the net loss came to $14.7 million.
But Wall Street doesn’t seem to mind since the growth is likely to continue for Benefitfocus. Just consider that the company’s target customers are employers that have over 1,000 employees, and there are about 18,000 of these kinds of businesses in the US. Something else: the insurance industry spent $55 billion a year for software and related services last year. Both stats show just how much potential there is in Benefitfocus’ segment.
At the same time, Benefitfocus is looking to expand into other categories. Perhaps the most interesting is for enrollment in Medicare and Medicaid, as there should be lots of demand for cloud-based services that can streamline the process and cut costs.
The bottom line: Benefitfocus seems to have big-time growth potential — and investors have been eager to bet on it.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.