Public perception can turn on a dime. Only a few weeks ago, Chamath Palihapitiya was hailed as a visionary investor. Now he is the face of the special purpose acquisition company (SPAC) bust. Since Feb. 17, 2021, all six of Palihapitiya’s SPAC companies have lost more than the average SPAC decline of 23%. I believe a lot of this decline is unwarranted though. Today, I will examine one of Palihapitiya’s worst-performing de-SPACed companies: Clover Health (NASDAQ:CLOV).
CLOV stock has fallen almost 50% from its all-time high, presenting a compelling opportunity for tech investors.
Clover Health is Using Technology for Better Health Outcomes at Lower Cost
Clover Health is a technology artificial intelligence (“AI”) and data analytics company disrupting the field of healthcare insurance. The company is currently focused on Medicare Advantage. However, I can see them expanding their product offering eventually. The company’s special sauce to speak is its internally developed technology platform, Clover Assistant. Unlike most technology firms that would license their software to other businesses, Clover Health opted to operate as an insurance company. This approach has the advantage of giving the company access to more clinical data, and using that data to improve physician outcomes, thus generating a positive feedback loop.
So how does Clover Assistant work exactly? Physicians receive the Clover Assistant software, which leverages data like lab results, prescription lists and previous diagnoses to suggest possible interventions to Physicians. As more Physicians use Clover Assistant, more data becomes available, and the “smarter” their AI becomes when making recommendations.
The focus is on pro-active care, in other words tackling health issues in their nascent stage before more expensive treatment is required. This results in healthier patients and thus cost savings for Clover Health as the insurance company. The company disclosed that the use of its software decreases hospital visits by 22% and emergency room visits by 23%.
Clover Health passes these cost savings on to customers, allowing it to have affordable plans with broad network access and lower out-of-pocket costs. According to Clover Health, its highest enrolled plan offers 17% average lifetime cost savings compared to its competitors and 41% average lifetime cost savings compared to Original Medicare.
CLOV Stock Is Targeted by a Short Report
Apart from the general weakness of all recently de-SPACed stocks, Clover Health was also hit by a short-seller report from Hindenburg. This has contributed to the general malaise plaguing CLOV stock. Hindenburg became famous for exposing the potential fraud at Nikola (NASDAQ:NKLA), so it’s important to pay attention to what they have to say.
While some of the allegations the hedge fund had made were concerning, it did not strike me as extensive, material wrongdoing. Issues on “misleading” marketing are relatively easy to fix with the cooperation of the relevant authorities. Company management has also debunked a lot of the more serious allegations. Much of the short-seller report also deals with Mr. Palihapitiya as a Wall Street personality, which is not really relevant to Clover Health as a company.
Overall I have been reasonably satisfied with management’s response. I believe Hindenburg may have uncovered some questionable business practices of Clover Health. However, for the purposes of releasing a short-seller report, sensationalized minor issues and wrapped in a narrative targeting Mr. Palihapitiya and SPACs in general. The fact that Hindenburg disclosed that it has not taken a short position in Clover Health is telling on the level of confidence they have on this report (unless of course, you believe they are doing this out of the kindness of their hearts!). After all money talks.
CLOV Stock: Investor Takeaway
Long-term investors should view the drop in CLOV stock as a buying opportunity. The company has had blockbuster results in 2020 and these are numbers that are hard to fake. Membership grew to 58,056 in 2020 — an increase of 36.3%. Out of these members, 32,400 were managed via Clover Assistant showing the value of the platform. Clover Health grew revenue 46% year-over-year to $673 million in 2020. I am confident the company will continue on this growth path in 2021 and beyond. I have a buy rating on CLOV stock.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.