This past Monday the stock market had its best day of 2021. The Dow Jones rose about 2%. The S&P 500 rose almost 2.5%. And the Nasdaq soared 3%. It was a great day — for most everyone except those invested in a small, hypergrowth health-tech company by the name of Ontrak (NASDAQ:OTRK). On the same day that the markets had their best day of 2021, OTRK stock had its worst day in five years, dropping nearly 50% on the day.
Ontrak — which has been in hypergrowth mode for several years thanks to its robust AI-powered, data-driven platform for optimizing behavioral health patient outcomes — lost its biggest customer. Specifically, the company said that its biggest healthcare plan partner will stop doing business with Ontrak, effective June 2021, and that this will cause Ontrak’s revenue growth rates to spiral from 100%-plus in both 2019 and 2020, to just 20% in 2021.
That’s bad news. But it’s not a deal-breaker. In fact, upon closer inspection, I see parallels between this situation, and when Twilio (NASDAQ:TWLO) lost its then-biggest customer Uber (NYSE:UBER) back in 2016. Everyone thought that Twilio losing Uber was the end of Twilio’s business model. TWLO stock sunk.
But it wasn’t. Instead, it was a golden buying opportunity. Twilio’s business has thrived ever since then. TWLO stock has soared more than 10X.
I think OTRK stock could do the exact same over the next few years.
OTRK Stock: The Core Bull Thesis
First, let’s zoom out and look at the big-picture bull thesis on OTRK stock.
It all starts with the overwhelming economic burden that unmet behavioral health issues have on healthcare providers.
Did you know that one out of five people every year deal with a behavioral health issue, like addiction, depression, or anxiety? That’s a tragic statistic. It’s also a costly one.
Chronic illness patients (think folks with diabetes, hypertension, coronary artery disease, and more) who concurrently deal with behavioral health issues, cost health plans up to 4.5X MORE than chronic illness patients who don’t deal with BH issues, mostly because behavioral health issues have a compounding effect on the patient’s well-being which prolongs recovery and/or creates new medical issues.
Makes sense. If you get addicted to your diabetes meds, you may alleviate your diabetes, but create a whole new problem altogether.
Therefore, health insurers needs to figure out a way to better identify patients with BH issues, treat these patients more effectively and dramatically reduce their cost.
That’s where Ontrak steps in.
Ontrak is leveraging big data and AI to help health insurance providers better manage the costs and outcomes of patients with BH issues.
Specifically, the company sells its PRE (Predict-Recommend-Engage) platform to health insurers. As the name would imply, the platform follows a simple three step process:
- Leverage proprietary AI-powered identification algorithms to analyze patient data, and predict which chronic illness patients have untreated behavioral health conditions that could worsen their chronic medical disease.
- Leverage robust clinical and insurance claims data to recommend effective care pathways for those targeted BH patients.
- Employ a multi-modal approach (telephone, video, email, text, etc.) to engage BH patients and guide them through their care journey.
Through these three steps, the PRE platform enables health insurers to not just improve the outcomes of its BH patients, but also dramatically reduce the costs of treating these patients, by reducing the chance that such patients aggravate their chronic illness.
This usage of AI and data to optimize healthcare offerings is the future — and Ontrak is pioneering that future today.
Ontrak PRE Platform Works
The Ontrak business model sounds great. But more importantly than that — and more critical to the success of OTRK stock — it works.
Ontrak’s AI-powered algos are doing a great job identifying patients with untreated behavioral health issues. About 97% of Ontrak’s members have not received behavioral health services in the last 12 months.
The company’s unique approach to outreach and fingerprinted interventions are reaching a new segment of the population. Around 90% of Ontrak’s eligible population aren’t touched by health plan care management programs.
Members who go through the PRE platform love it and swear it works. Ontrak has an impressive Net Promoter Score among members of 74.
And, most importantly, the Ontrak PRE platform does exactly what it sets out to do: Reduce the economic burden of BH issues on healthcare providers.
Ontrak’s customers – which already includes big names like Aetna and Humana – have reduced their BH patient health costs by over 50%, on average.
The data here is crystal clear. Ontrak’s PRE-program works. The company is truly leveraging big data to drive big savings for big companies.
That’s a recipe for success. And this success has shown up in the numbers. In 2018, Ontrak’s revenues rose 88%. In 2019, they rose another 134%. In 2020, they rose 136%.
One Lost Deal is Not Representative
Revenue growth at Ontrak was supposed to sustain its torrid 100%-plus pace in 2021. Then the company lost its biggest customer. And now, management is guiding for just 20% revenue growth this year.
Wall Street is clearly worried that this customer exit is a sign of a sustained dramatic slowdown in the business. Rightly so. After all, this big, unnamed customer clearly was not satisfied with Ontrak. So they left. What’s to stop other customers from also being unsatisfied and ditching Ontrak, too?
But the answer to that question is actually astoundingly simple: Ontrak has a breakthrough, proprietary technology platform that delivers meaningfully positive economic outcomes for its customers.
Sure, it didn’t work great for this one customer. But Ontrak’s deal with this big customer was not normal. The customer evaluated Ontrak on a provider basis (not a vendor basis as do all of the company’s other health plan partners). The customer also only allowed interaction with its behavior health division (and forbid interaction with its medical division, which is also abnormal). Plus, the customer didn’t value Ontrak’s coaching model, which Ontrak and many of its other customers see as a critical component of the PRE platform.
Overall, it wasn’t a normal deal – and I don’t think we should be looking at this loss-of-business as representative of the company’s entire deal portfolio as a whole, especially since Ontrak is re-signing and extending contracts for every other customer in its pipeline.
If that weren’t the case, I’d be worried. But it is the case. And as such, I think the fears of a sustained slowdown that are being priced in OTRK stock are overdone.
This situation of Ontrak losing its biggest customer at a time when the company is growing at a 100%-plus pace reminds me of Twilio back in 2016.
At that time, Twilio was a red-hot tech startup offering communication APIs to businesses looking to communicate with their customers. It was a Wall Street darling. Revenues were soaring, and the TWLO stock price was flying high.
Then, suddenly, Twilio’s biggest customer at the time – Uber – left Twilio. The company guided for a huge slowdown in revenue growth. Wall Street freaked out, saying that everyone was going to following in Uber’s footsteps and move communication API development in-house. TWLO stock tanked.
So much for that thesis.
Nobody followed in Uber’s footsteps. Instead, everyone used Twilio’s communication APIs because they were the best the market had to offer, and building such high-quality products in-house would’ve been impossible. Twilio’s growth rates rebounded, and TWLO stock has soared more than 10X since.
I suspect OTRK stock will follow the same trajectory.
Most healthcare providers won’t follow in this unnamed customer’s footsteps. Instead, most will use Ontrak’s PRE platform because it’s built on the best technology industry, with proven and material economic benefits. Ontrak’s growth rates will rebound, and OTRK stock will soar over the next few years.
Are 10X gains possible? Absolutely — considering this is a $500 million company pioneering a breakthrough solution in a $33.7 billion market.
Bottom Line on OTRK Stock
Things look bad for Ontrak today on the heels of this company losing its biggest customer. But things also looked bad for Twilio back in 2016 after it lost its biggest customer. Twilio has thrived in the years since then, as its industry-leading technology convinced every other customer to stick with Twilio. Ontrak should do the same over the next few years.
From that perspective, OTRK stock may be one of the best stocks to buy in the market today.
But it’s not the best growth stock to buy today.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon (NASDAQ:AMZN). Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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