Description

Company Overview                            

Doximity (DOCS) is the leading social networking platform designed exclusively for medical professionals. Across its 13-year history, Doximity has grown to count 80% of U.S. doctors, 50% of Nurse Practitioners, and a growing number of pharmacists, hospital workers, and medical students as users. In order to sign up for Doximity, users must be verified as medical professionals through answering challenge questions and submitting medical licenses or ID photos. After being verified, users can network and connect with colleagues, read, and comment on medical news, and utilize Doximity’s various free productivity tools. As opposed to text or email, Doximity’s integrated productivity solutions, Dialer, e-signature, and Efax, are all HIPAA-compliant, allowing doctors to contact patients and discuss treatment information legally and securely. The most utilized productivity tool, Dialer, allows physicians to customize the CallerID patients see after calling from the app and conduct telemedicine voice or video calls. Over the past several years, Doximity has balanced fast growth with profitability, culminating in an IPO in June 2021. Doximity generates over 85% of its revenue from targeted pharmaceutical, hiring, and health system advertisements that appear on a doctor’s feed, with the remainder being telehealth and enterprise productivity subscriptions.

Company Positioning

In the networking market, Doximity’s only direct competitor offering professional networking features is LinkedIn. At Microsoft’s purchase price, LinkedIn traded at 79x EV/EBITDA, was unprofitable, and grew revenue 34% YoY. Doximity, in addition to a more targeted user base, trades at 63x EV/EBITDA, is profitable, and grew revenue 76% YoY. Meanwhile, medical networking platforms like Sermo, which boast roughly 1/3 of Doximity’s user base and lack productivity features, choose not to directly compete, and instead allow users to only discuss patient treatments. On the telehealth front, which Doximity entered in 2020 with Dialer video, the industry surpassed $30B in 2021 and is forecasted to grow 18% a year over the next 5 years. Teladoc, the largest competitor, generated nearly 5x Doximity’s revenue last year, but was unprofitable. Although Doximity powered 30 million more visits than Teladoc in 2021, Doximity’s current user base primarily uses the free-tier of the service, as opposed to Teladoc’s focus on higher revenue enterprise clients.

Investment Thesis

Looking forward, Doximity is poised to attract new professionals and improve engagement among existing users due to the strong network effect of their social media and productivity solutions. As more users register for Doximity and integrate productivity solutions into their workflow, the value professionals receive from the service and the time they spend on the app grows. With this large and engaged user base, Doximity is set up to capture more of the drug marketing, patient referral, and hiring spend that is increasingly being diverted to online channels due to their higher ROI versus traditional outlets. Lastly, Doximity has ample opportunities to reinvest profits into developing new productivity features to increase enterprise and telehealth subscription sales and adoption. These enterprise, HIPAA-compliant, telehealth solutions are growing in usage and currently represent just 15% of sales.

User Retention and Productivity Adoption Growth

Doximity’s largest advantage over competing productivity and networking solutions is its 1.8 million users, which encompass over 80% of physicians in the U.S. As more users signed up for Doximity, the value of the platform has increased exponentially, with each registration growing the number of users a physician can send or receive documents to, a colleague can connect with, and an advertiser can market to. As opposed to competing platforms like LinkedIn or CloudFax, that solely offer networking or productivity tools respectively, Doximity integrates them both within the same app, becoming a one-stop-shop for physician’s needs. For example, many Doximity users initially enroll to connect with colleagues and network, yet 70% eventually try to integrate a productivity tool into their workflow. While Doximity’s free social networking features attract the majority of users, they are then pushed to try free productivity solutions like Dialer and Efax, conveniently located within the same app. These features, like Efax, benefit from the wide physician adoption of Doximity, with several of a patient’s doctors able to securely send and sign medical records, all from the mobile Doximity app. As more users continue adopting Doximity’s suite of productivity offerings, platform engagement will continue to grow, translating to higher monetization potential from ads. Doximity’s large user base and network effect also staves off competitors in both networking and productivity.

Doximity’s competitors, who mostly center on productivity solutions, lack a large base of users who signed up for free networking features, meaning they have significantly higher customer acquisition costs. Productivity competitors like CloudFax, with 140,000 members, lack Doximity’s strong user base that has been amassed via their free productivity and social networking features. This translates to higher customer acquisition costs for CloudFax to strengthen the network of users, as the platform is worthless if either a sender or receiver of a medical document does not have the app. Doximity benefits from marketing its integrated Efax feature to its 1.8 million users for free.

Challenging Doximity’s networking aspect is even harder for competitors like LinkedIn because they struggle with diverting physician time away from Doximity. The majority of physicians are already verified on Doximity, have connected with colleagues, and spend time utilizing a suite of free productivity tools within the app. Any new networking competitor seeking to monetize their user base to the extent of Doximity must first attract and verify a similarly comprehensive base of medical professionals, while implementing free productivity tools to prevent physicians from spending time on Doximity in their workflow. Alternatively, existing competitors like LinkedIn lack user verification and a suite of HIPAA-compliant productivity tools, instead choosing to serve a larger, less specialized, networking audience. For advertisers, the value of Doximity’s large, specialized, and verified user base remains undisputed.

Continued Marketing and Hiring Growth

Doximity's success has been tied to its ability to sell pharmaceutical companies and health networks targeted ads to Doximity’s verified network of medical professionals. Over the past two years, marketing spend from the two aforementioned customer groups has comprised over 80% of Doximity's revenue and a significant portion of profits. Even though Doximity nearly doubled its platform marketing spend from 2019 to 2021, the firm captured just 2% of the $14.2B pharmaceutical and healthcare marketing addressable market, leaving ample room for growth. For pharmaceutical companies, Doximity’s targeted ad suite, as opposed to costly, in-person sales reps, is invaluable for marketing drugs. Pharmaceutical companies advertising on Doximity generate an average ROI of 14:1, 2-3x the average generated through sales teams or medical journal ads. Additionally, health system customers use Doximity to advertise patient referrals, with ROI averaging 10:1. This superior value proposition, coupled with COVID-19 and secular shift to online advertising, has resulted in the number of Doximity customers generating over $100,000 in revenue doubling to 200 over the past three years, while revenue retention has risen to 173%, from 136%. It currently has resided around 140%. Doximity also has seen growth in hiring and recruitment ad spending, with it comprising roughly 10% of revenue. With 90% of recent medical school graduates on Doximity, the company should benefit from increased hiring spend as a means to directly connect with verified medical students seeking work.

Reinvestment Opportunities in Enterprise Telehealth

Although a majority of Doximity’s revenue is derived from advertising spend, the firm’s profitability and high operating leverage have allowed it to pursue the relatively untapped enterprise and telehealth market. Even though Doximity has not raised funds since 2014, the firm has proved capable in reinvesting into features, like adding free Dialer video calling support in 2020, which powered 63 million calls in 2021. According to management, the next driver of revenue growth will be adding paid telehealth and productivity enterprise solutions to further hospital health system adoption. To improve their positioning versus competitors like Teladoc, Doximity’s platform offers opportunities to develop several complementary tools, like enabling in app appointment scheduling, sending prescription refills, and patient billing. The addition of these new features will strengthen Doximity’s array of existing productivity offerings, making the platform a one-stop-shop for a physician’s needs. With a more comprehensive enterprise product offering, Doximity can cross-sell new productivity solutions to large medical clients and further integrate into their workflow, especially as Doximity’s paid enterprise solutions like Dialer and Efax, alongside free social features, are already used in 6 of the top 10 hospitals. Reinvesting into more complimentary productivity features will enable the firm to offer new product integration within large hospitals, while offering end to end solutions to untapped groups. As telehealth productivity tool integration deepens in large enterprise workflows, Doximity’s switching costs will grow incrementally, generating an enterprise moat.

Conclusion

Doximity is a wide moat business that is growing and taking share in a large total addressable market, while reinvesting profits into developing new enterprise telehealth features. Down over 50% from its peak, Doximity has become relatively less expensive and can boast an attractive valuation if operating leverage can be realized.

Risks

Doximity trades at a premium valuation, without many comparable peers. Slowdowns in FDA approvals are likely to hurt Doximity’s marketing business, as are general macroeconomic slowdowns.

Catalyst

None