Is Practice Fusion Heading for an IPO?

Posted on January 21, 2016 I Written By

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The New York Times recently reported that Practice Fusion is said to have hired JP Morgan Chase to evaluate an IPO. Here’s a look at the estimated IPO number for Practice Fusion according to the New York Times:

Practice Fusion later created a way to estimate its I.P.O. valuation if revenue came in at $155 million in 2018 instead of $181 million, according to one of the people. Using the lower revenue assumption, the company could command a valuation of $1.1 billion to $1.2 billion if it goes public. It is unclear if the lower revenue estimate was made in response to the market turmoil.

Practice Fusion itself is of course not really commenting on their plans for an IPO or not. However, since it has raised $149 million to date at a valuation of $635 million, you have to imagine that an IPO is in their future. However, many big silicon valley companies have stuck to the private market lately and avoided the IPO. I’m not sure Practice Fusion will be in a similar position to them though. A look at their revenue numbers is one indication of why they’re a bit different than other companies that have raised larger rounds in the private markets:

Practice Fusion’s revenue was $26.9 million in 2014 and was expected to increase by 71 percent to $46.1 million in 2015, with the company projecting it would pare losses by 40 percent to $25.8 million in 2015, according to the document prepared by bankers and the company.

At the time the document was prepared, the company estimated revenue would hit $70 million in 2016.

I personally think that an IPO is in Practice Fusion’s future. It’s just a question of when it will happen. Certainly the market volatility we’ve seen lately isn’t helping their case to do an IPO. However, I bet the bigger challenge is going to be creating attractive revenue numbers that make sense to the public markets. I believe public markets have a hard time valuing number of users and other metrics that make Practice Fusion look attractive.

Ever since the first venture capitalists asked me about Practice Fusion, I’ve said that the company has created value. The number of doctors they were able to sign up on their platform was impressive. That’s the power of offering something for free that other doctors pay hundreds of thousands of dollars to buy. No doubt their network of physician users is a valuable asset. I hope it is since they raised $149 million to build it.

The real question for me around Practice Fusion isn’t whether they created value. Instead, the question is how valuable is what they created? I once heard Peter Thiel suggest at their user conference that Practice Fusion was building the platform for healthcare. Building that would be worth multiple billions of dollars. However, Practice Fusion hasn’t built anything close to that since Practice Fusion is doing nothing in the hospital EHR space. It’s naive to think that Practice Fusion could compete in that piece of healthcare. Not to mention they have a very small part of the hospital owned ambulatory practice space where the trend is to go with the integrated hospital EHR solution.

Long story short, I think that Practice Fusion will do an IPO. I could even see them doing an IPO for a billion dollars. I’m sure that’s what Ryan Howard, Practice Fusion Founder and former CEO, wants so he can claim his startup unicorn status. Although, I’ll be interested to see how Practice Fusion’s revenue grows between now and an IPO. The golden age of EHR is over and we’re entering the dirty slog of EHR sales and EHR switching. I don’t think that makes for a compelling story for investors.