Wall Street Is Punishing Amwell And The Schoenberg Brothers. But Is The Company Undervalued?

The turn of the 20th century was a time of dramatic change, with two titans of innovation competing to transform the way Americans lived and worked. Thomas Edison didn’t invent the lightbulb, but his and Nikola Tesla’s efforts to create systems to safely and efficiently distribute electricity would create the building blocks for the modern economy and way of life.

Both men would live well into the 1900s, to see their efforts come to fruition. One would continue building his company to great success while growing his family; the other lived alone, withdrew from society, and fell in love with a pigeon.

A century later, two physician brothers have been working for the better part of two decades to enable a future of medicine that is more accessible and convenient for both consumer and clinician. As with Edison and the lightbulb, Roy and Ido Schoenberg didn’t invent telehealth, but their company AmWell is seeking to distribute it nationwide.

Yet after the pandemic drove telehealth volume to astronomical highs - during which the Schoenberg brothers astutely took AmWell public and raised more than $1.1 billion (in an IPO and secondary offering) - there has been a massive backslide.

Meanwhile, Amwell has now blown through almost $700 million in cash over three and a half years, spending $320 million on two acquisitions and ~$350 million on research and development to ‘replatform’ its technology stack.

And Amwell’s revenue over the past three years has been flat even as competitors’ revenues have grown. One of those competitors just ousted its CEO. Finger-pointing at Amwell has begun.

After trading as high as $42, Amwell is now a penny stock. The company has been notified by the New York Stock Exchange that it could be delisted.

And so, despite still sitting on more than $370 million in cash and with virtually zero debt, Amwell’s market capitalization (the collective value of all outstanding shares) sits at $156 million. That is, Amwell’s investors value the company less than the cash they could distribute to themselves if the company simply shut down today.

Why is the company’s market cap less than the cash it has on hand? The answer appears to come down to three things: Roy, Ido, and the control that the two have in corporate voting power. As a result, it looks like investors attribute negative ~$100 million in shareholder value to Roy and Ido. Apiece.

Roy and Ido both remain optimistic about telehealth’s future, and Amwell’s opportunities as well. Are they right about the future, and accordingly, how should investors value Amwell shares? Or is it too late, as investors seem to have concluded?

Or, reframed: are the Shoenberg brothers a modern day version of Edison, or like Tesla will they withdraw from society, abandon their company and wind up proclaiming their love for pigeons?

Level Setting: Amwell and Telehealth’s Story

Up until recently, care delivered remotely was the exception, not the rule. Challenges to adoption were both on the provider side (lack of reimbursement, training, integration, etc) and the consumer side (lack of awareness, technology barriers, etc), which stymied broader telehealth adoption for decades.

Into this void stepped Teladoc (in 2002) and Amwell (in 2006) to evangelize virtual care: the delivery of healthcare online and via video visits. Teladoc decided to sell its services to employers as a benefit to employees, while Amwell largely sold telehealth software to incumbent health systems and health plans, encouraging them to create their own virtual care offerings. (Amwell did establish its own medical group to support its clients, but unlike Teladoc, has not sold itself as a virtual care provider to either employers or consumers.)

The promise of telehealth and virtual care was (and is) compelling: the potential to increase access to care, at lower cost, with the potential to complement in-person care to improve quality.

Adoption and demand grew through the 2010s, but slowly. That all changed overnight with the pandemic, as consumers could not access care in person, nor could providers practice in person. Regulations that had been a barrier were waived, while plans figured out reimbursement policies. “We’ve advanced 10 years in 10 months,” was a common refrain.

Telehealth began to encompass not just audio and video visits, but other things as well. Remote patient monitoring. Asynchronous visits. Automated messaging.

Hindsight being 20/20, what is most clear about the impact of the pandemic on telehealth and virtual care is three things:

1. It prompted a temporary massive adoption and experimentation by both consumers and providers
2. It drove investor excitement over the prospects for substantial disruption of traditional care delivery, with resulting startups being funded
3. It was a unique moment in time for established telehealth companies AmWell (to go public) and Teladoc (to acquire Livongo)

Where Amwell Is Today Relative To Other Telehealth And Virtual Care Players: Ahead, But Behind?

From a market viewpoint, Amwell is an undisputed telehealth leader. The company touts 2000+ hospital customers, 55 health plan partners and collectively 100M+ members (compared to Teladoc’s 90M). The company has received recognition from J.D. Power and Frost & Sullivan (among others) as the best telehealth provider on the market.

And, of course, Amwell has access to capital and healthcare expertise. Beyond the total of $1.7B of capital that company has raised to date ($625M prior to the IPO and $1.1B since), Amwell has blue chip healthcare investors, which have included McKesson, Google, Echo Health Ventures, Takeda Digital Ventures, Elevance, Philips, Northwell and Teva.

Where Amwell seems to have fallen behind many telehealth and virtual care startups and competitors is in two areas: growth and financial performance. On the growth front, revenue since 2020 has essentially been flat since the company’s IPO, increasing by an anemic 2.5% compound annual growth rate (CAGR) from $215.5 million to $231.8 million in 2023.

To be fair, plenty of other telehealth and virtual care companies are facing growth challenges, as both consumers and physicians have largely returned to old, in-person visit habits.

But there are those who have figured out pockets of growth. For instance, over the same time period, Teladoc (perhaps Amwell’s largest and most direct competitor) grew revenue annually at a 27.8% clip, from $1.1B to $2.3B, largely through its BetterHelp mental health segment. Likewise, Hims & Hers Health has grown from $148 million to $872 million in revenue for a 80% CAGR.

Perhaps an even bigger challenge for Amwell than finding pockets of growth (the company has increased sales and marketing spend since 2022) is the company’s financial performance. A typical benchmark for technology companies is to adhere to the ‘Rule of 40’: the idea that revenue growth and profit combined should add up to 40%. In Amwell’s case, the company has averaged -106%.

Digging a bit deeper demonstrates the many contributing factors to Amwell’s poor financial returns. Amwell’s gross margin in 2023 was 37% compared with Teladoc’s 71% that same year. In earnings calls, Amwell has attributed the low gross margin to the high portion of its revenue (46% in 2023) coming from its services business: visits that its own Amwell Medical Group conducts. Yet Teladoc has a substantial services business as well, which accounts for about 43% of its revenue. Amwell’s revenue per visit appears lower than Teladoc’s, while its cost per visit is higher.

Beyond that, while Amwell communicated following its IPO that it would invest significantly in a new technology platform and to scale its operations, it has not brought those expenses down on a timeline consistent with expectations the company itself set.

For instance, in its Q3 2020 earnings call, Amwell’s CFO said, “With the IPO now behind us, in Q4 and throughout next year we see G&A spend normalizing back to the low mid-$20 million [quarterly spend] range.” That happened in 2021, but G&A spend increased again in 2022 and has remained elevated, averaging in the mid $30 million range on a quarterly basis since.

And related to its new platform Converge, in the same Q3 2020 call the CFO explained, “Regarding R&D, we expect the increased spend we discussed during the IPO to continue into 2021 and potentially for the entire year.” The actual elevated spend continued through 2022 and even into 2023. During this time, Amwell invested an average of 44% of its revenue and a total of $351 million into R&D. For comparison, tech giants Apple and Google invested ~8% to 15% into R&D in 2023, respectively.

Meanwhile, Amwell’s stated belief that converting clients to the Converge platforms would lead to higher gross margins hasn’t panned out yet. And, accordingly, Amwell’s timeline to breakeven has slipped from 2025; the company now suggests it is targeting 2026.

It’s difficult to determine what Amwell’s product and market strategy really is. For a long time, the Amwell brand stood for video telemedicine integrated with the EHR; now it includes chatbots, AI, specialty consults, and perhaps most of all, the Converge platform itself (whose functions or benefits aren’t entirely clear to a layperson).

All of this said, there are reasons to believe the company is turning a corner in the market. Beyond the earlier advantages mentioned, Amwell has largely retained its client base while replatforming, and has recently extended or signed large new enterprise agreements with names including Elevance, CVS Health, and U.S. Defense Health Agency.

Challenges And Opportunities Ahead

Amwell’s path and claimed visibility to breakeven may help calm investor jitters, but won’t help internal and external challenges. Internally, Amwell’s dismal share price (and risk of being delisted) is likely to make it hard to attract and retain the type of executive and employee talent needed to help the company pivot and execute. (For instance, even co-CEO Roy Schoenberg’s 2.1M shares are worth a total of only $1.8 million as of this writing).

Talent will be important amidst increasing competition, commoditization, and uncertainty in the broader telehealth environment. On the competitive front, Epic System’s new telehealth offering is likely to continue putting downward pricing pressure on Amwell’s hospital business, given Epic’s dominant position with the types of larger health systems that make up Amwell’s user base and its willingness to discount and bundle in new service offerings to gain share. And Epic’s partnership with startup virtual care provider KeyCare, which offers white-labeled virtual care services to supplement a health systems’ own providers, and is built on Epic’s telehealth tech, appears competitive to AmWell’s own AmWell Medical Group offering.

The uncertainty around how payers ranging from Medicare and Medicaid to commercial plans will allow and reimburse for telehealth services also remains a challenge.

Another huge issue for Amwell is the extreme variability in the level of interest for telehealth among health plans and health systems, and how they are implementing these strategies. Unlike virtual care companies (such as Hims & Hers or Talkspace), whose entire value proposition rests on telehealth, Amwell’s customers and prospects still operate in a world dominated by bricks and mortar healthcare, where telehealth is often a minor component among a raft of initiatives. Driving meaningful results at scale can be difficult with myriad other, higher priority, efforts.

The challenges are real, but so are the opportunities for Amwell. Telehealth volume may have come down from its pandemic peaks, but it’s also headed in one direction: back up. Consumers have discovered the convenience, accessibility and lower cost of virtual care, but what we’ve seen is likely only the tip of the iceberg. In terms of where they want to access virtual care, the answer is overwhelming: with their own doctor. And when they see their own doctor, they receive better care.

While many telehealth and virtual care companies compete with incumbent health systems and health plans, Amwell has established itself as a trusted partner to those health systems and plans. Each side (systems and plan) face their own operational and strategic issues, but telehealth is likely to be a part of their future, and they bring incredible strengths to the table that standalone virtual care companies don’t, including established scale, brand awareness, access to capital, and a breadth of clinical expertise.

Five Ideas Amwell Should Consider To Get Back On Track (and Stay On NYSE)

Amwell’s strengths outweigh its weaknesses, but there are things it can do to help improve its growth prospects and financial performance, but also its share price. These include:

1. Focusing the strategy and story: From quarter to quarter, Amwell chooses to highlight how different clients all over the world use its software for myriad purposes. The use case focus has shifted from behavioral health to surgical care to dentistry to longitudinal care to dermatology. Market focus seems to shift from U.S. health systems to international to government to large corporate. The risk is that when a company tries to be everything to everyone, it is valuable to none. It’s understandable that different healthcare organizations will use Amwell’s products in different ways, but certainly there is an opportunity for Amwell to rework and sharpen its strategic focus (market segments, product, messaging) and tell a more clear, compelling, and consistent story to investors. It also must be believable, as executing against the plan and milestones will build confidence.
2. Selling value, not technology: Amwell’s website and materials largely mirror their earnings calls: Converge, Converge, Converge! Yet Converge is merely a technology platform, whose meaning, applicability and benefits isn’t clear. Prospective health system and health plans buyers don’t buy technology - they buy solutions that address their problems, from relationships they trust. It seems that Amwell has the trust. Now, the company should figure out how to position its collective offerings in a coherent way that highlights how each component solves a specific pain point, and how clients benefit from how it all fits together.
3. Fixing gross margins: Amwell has at times blamed low margins on its ‘visit’ business. The company has consistently said that shifting customers onto Converge, and becoming a true SaaS company, would yield higher margins. Yet with more than 50% of customer visit volume on Converge, gross margins remain paltry (and have even decreased). This is a hair on fire problem that is begging to be addressed. Teladoc and others have proven that telehealth and virtual care can be done at 70%+ gross margins. Whether it’s cutting loose low-or-negative gross margin services or figuring out a more efficient labor model for its AMG visits business or a more automated (or self-service) implementation for Converge, fixing the company’s cost of revenue problem is a must, as doing so would likely deliver $70 million to $80 million in EBITDA improvement alone.
4. Building on D2C efforts to generate demand and experience: The company wants to sell SaaS to providers and plans, but as the recent news about Optum’s telehealth division shutting down and Walmart Health’s shuttering shows, operating a virtual care business is incredibly complex. Amwell shouldn’t rely on its customers to figure out the nuances. While the company doesn’t want to compete with its customers, it also should recognize that it has an opportunity to stimulate demand in the market and, by doing so, can generate lessons learned that it can pass along to its customers. In the meantime, operating a D2C virtual care company in a high demand clinical area can be a source of growth.
5. Cultivating network effects: Amwell can look to another healthcare software market leader for clues as to how to drive client value and revenue expansion: Epic Systems. Epic wins industry awards for its software, which in part works so well because it enables world-class interoperability between customers using Epic. In addition, many industry insiders point to its network of users as the greatest source of value for clients. Epic supports its clients with online and user forums so they can share insights, best practices, and come together to learn how to get the most value out of Epic. As telehealth and virtual care is still incredibly new, Amwell’s client base can benefit by learning from each other and understanding what works well (and what doesn’t) across domains such as implementation, staffing models, conditions, models of care, etc.

Perhaps Not Aligned, But Also Undervalued

“The holders of our Class B common stock may cause [Amwell] to make strategic decisions or pursue acquisitions that could involve risks to you or which may not be aligned with your interests,” notes Amwell’s investor prospectus, highlighting how Ido and Roy Shoenberg (Class B shareholders) control the company despite being minority shareholders.

The above sentence is what likely explains why Amwell is worth less than the cash sitting on its balance sheet. It also explains why Ido and Roy Schoenberg are unlikely to suffer the same fate as their longtime competitor Jason Gorevic, recently ousted as Teladoc CEO.

Without the ability to exert meaningful pressure or outright make changes, Wall Street appears to have lost faith in the Schoenberg brothers and Amwell.

But transformative change - the type that telehealth may ultimately help usher in - takes time.

After all, it was 14 years from the point Edison invented the incandescent bulb before the world had its first major display of electricity when Westinghouse used an alternating current system to light the Chicago World’s Fair. And another 42 years before electricity became ubiquitous enough for Congress to regulate it.

In between, Edison continued tinkering, failing frequently, ultimately succeeding in helping to change the world. Tesla, known for his brilliance and ability to design solutions entirely in his head, wound up withdrawing from society.

The Schoenberg brothers are tinkering. When their tinkering fails their own and certainly Wall Street’s expectations, that failure is public, and stings. But their approach to innovation and driving transformative change looks an awful lot more like Edison’s than Tesla’s.

Wall Street may have lost faith, but Amwell’s company’s assets and market footprint alone likely make them worth more than their $170 million market capitalization to many would-be strategic buyers. And not much has changed about the importance of telehealth’s role in the future of healthcare.