Four Leaf Clover…

The Rundown (6/10/21)

It’s been a long week. I’m buying all of you some booze.

Click to get 3 bottles of wine from Bright Cellars on my dime.

Founded by two MIT grads who were intimidated by the vast and complex world of wine, Bright Cellars was created to help wine drinkers discover and learn about wine in a fun, interactive way.

Bright Cellars creates a wine experience tailored just for you. Based on the Bright Points algorithm, wine selections are calculated to match your specific taste preferences. As you try the wines, you’re encouraged to rate them on the website to fine-tune your taste profile even further. Your matches improve as the algorithm gets to know you better, making each shipment better than the last.

Clover Health is a Contrarian Play

Clover Health Investments, a Medicare Advantage insurer which went public with an SPAC Social Capital Hedosophia Holdings. The company’s stock has slumped in recent weeks with a 44% fall from its January high. The company has a proprietary solution called Clover Assistant which drives down healthcare costs and improves the experience for members under its program.

Since the software is internally developed, this gives the company control and flexibility over operations. As of February, the company has 66,000 members with the service spanning across seven states. Clover has demonstrated tremendous growth in both its customer base and revenues over the past few years thanks to its ease of use and benefits its for both health care providers and patients. 

Clover Has Huge Market Potential 

The total healthcare market is one of the largest in the country valued at $3.8 trillion. An important part of this market is the insurance industry and more specifically Medicare plans which have over 60 million people enrolled. Medicare plans have four parts, one of them being Medicare Advantage, which offers an alternative to traditional Medicare coverage with a marketplace where plans are provided by private insurance companies instead of the federal government. Clover operates in a space with a huge total addressable market of $270 billion in annual spending. The company expects the medicare advantage market to grow at an annual growth rate of 14% to $590 billion by 2025. 

Clover has managed to remove some of the disadvantages commonly present with Medicare Advantage plans, thereby giving it a competitive edge to attract a large number of consumers. Since Medicare advantage plans are more affordable, there has been a continues increase in the percentage of Medicare beneficiaries who choose a Medicare Advantage plan over other plans. Currently 39% of the total Medicare-eligible population chooses to enrol in Medicare advantage and is expected to significantly rise to 50% by 2025 and 70% by 2040. 

Clover Assistant’s Innovative Solution 

Using machine learning and artificial intelligence to facilitate access to information and insights, Clover has significantly reduced costs compared to its competitors and other Medicare plans. Clover Assistant drives down patient costs, has improved healthcare management efficiency and higher payments for healthcare providers. Clover Assistant enables its members to enjoy the freedom of choice width its expansive, open network with the same cost-sharing for members who see physicians in and out of the network.

Clover also provides twice the industry rein burns net rates and average payment days of only 4 days. This is integrated into a consumer centered interface which allows providers to have the information that is necessary for treating the patient. Clover Assistants penetration within its current membership is about 56%, leaving plenty of room to grow. The company aims to achieve a long-run penetration rate exceeding 70%. 

Growth Strategy 

Clover believes that it can gain access to markets which have little penetration from their competitors and retain users. Retention will be key as revenues are expected to be lower for returning members as compared to new members. The key priority for the company will be to add new members and physicians to  its Clover Assistant network in more states and markets. Clover expects it’s membership to grow by 21% to approximately 70,000 in 2021. This is a key figure to keep track of to evaluate the market penetration performance of the company.

Financials and Valuation 

The company earns a majority of its revenue from its direct sales force. The company calls these independent brokers its “ground game”. While the company currently has very little in marketing spend, it is expected to expand its channel reach beyond brokers. The company has archived tremendous growth in the past couple of years with revenues growing from $281 million in 2018 to $690 million in 2020. The company expects 2021 revenues to be between around $850 million for the year which is a growth of approximately 23%. This marks a departure from the pre-listing high growth years. 

The company’s current valuation reflects its high expected growth rates. The company is trading at FY 2022 EV/Revenue of 3.93. Compared to its larger competitors these valuations are slightly more expensive. The company’s growth profile certainly doesn’t come cheap and the company will need to grow fast to justify this premium valuation. A return to the era of high growth rate of 50% will spur more interest in the stock compared to the current projections. While the company narrowed its loss in 2020 to $200 million, it is expected to continue with more investments to expand its distribution channels beyond the main broker channel in addition to improving its technological edge. This is expected to result in the company’s net loss widening to $210 million. Clover is prioritising its expansion into more segments and is not targeting profitability in the near term. 

Valuation Risk

Since the company’s success largely depends on the growth of the Clover Assistant, there is a key investment risk. If the company’s larger competitors are able to develop a competing technology which surpasses the superiority of the Clover Assistant, the company’s competitive advantage could erode. 

In addition, if the company is unable to successful achieve its target retention ratio of its members, the profitability is likely to be impacted hugely. Clover’s revenue is also heavily concentrated in New Jersey and any changes in the regularity environment, competitors, policy benefit costs for members or reimbursement costs to healthcare partners could significantly impact operating revenues. 


Clover Health is a high growth stock in a competitive industry, where it aims to disrupt the business model of its much larger competitors. Clover has been gaining market share against the bigger competitors with its propriety CA platform. Investors need to keep track of the company’s total membership, which will have a huge impact on future revenues. While the current valuations are stretched, investors can expect the company to catch up to this with its innovative platform and high growth.


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