Clover health is a renowned healthcare provider that was launched in 2014. It focuses on preventive care and has garnered over 66,000 members across the United States and Hong Kong. However, the year 2021 saw Clover health plummet in stock prices. Here we explore the moments leading up to Clover Health stock crash.
Brief History of the SPAC Merger That Took the Company Public
In 2020, Clover Health announced its plans to merge with Social Capital Hedosophia Holdings Corp. lll, a special purpose acquisition company. Helmed by respected venture capitalist, Chamath Palihapitiya (the ‘SPAC-King’ at the time), Clover Health closed a $3.7 billion deal with the SPAC. Through this merger the healthcare company aimed to go public.
However, while shares did increase after the merger with a first day trading of $7 billion. Clover Health witnessed a massive plummet in stock prices in 2021. Stock prices dropped by 90% with price per share decreasing to cost a mere $2.54. The company valuation dropped a whopping 74% to $1.94 billion as opposed to its $7 billion valuation.
Issues That Led to the Clover Health Stock Crash
After its merger with SPAC, things initially seemed to be going well for Clover Health. The company reported a record revenue of $200.3 million during the first quarter of the 2021 fiscal year, a 21% year-on-year increase. However, stocks soon began to plummet, with the company generating a net loss of $48.4 million during the first quarter, $317.6 during the second quarter, and $34.53 million in the third quarter.
Additionally, the healthcare company reported a GAAP Medicare Advantage (MA) Medical Care Ratio (MCR) of 102.5% for the third quarter of 2021. This compared to the recommended 80%-85% acts as a massive disadvantage to the company.
Other issues that may have caused the plummet of Clover Health’s stock include:
- Free Cash Flow
The company possesses a negative trend related to Free Cash Flow, burning cash continuously through the first three quarters of 2021. The continual burning of cash may lead to potential bankruptcy. It also demonstrates the lack of sustainable financial allocation. In the first quarter of 2021, Clover Health reported a Free Cash Flow of a whopping $92.97 million and a total cash burn of $202.64 million for the past nine months.
- Stock Dilution
A new introduction from Clover Health, the company announced a public offering of Class A common stock. This stock was expected to bring an estimate of $300 million of gross revenue to the company. However, this only worsens the intrinsic value of CLOV stock.
Current Earnings, Profitability and Analyst Outlook
The current earnings of clover health according to NASDAQ, have surpassed the expectations of analysts. The company generated total revenue of $427.2 million for the third quarter of 2021. In addition, the healthcare company also recorded a relatively normal Medicare Advantage Premium of 94.8%.
Analysts predict that Clover Health only has a Moderate Sell consensus. The average Clover Health price target stands at $8.50 which indicates a 5.85% upside potential to its current levels. However, the overall shares for the company have declined by almost 20%.
Officials from Clover Health predict the company may be able to witness profits during the financial year of 2022. However, this would only be possible with a significant decrease to Medicare Advantage Premium as well as the amount of burning cash.
The future of Clover Health seems ambiguous at best, yet, the healthcare company may be able to turn things around!
