Babylon Holdings Limited

Summary

Babylon Holdings Limited operates as a digital healthcare company. It offers end-to-end care solution that facilities through its digital health suite, virtual care, in-person medical care, and post-care offerings. The company also provides Babylon Cloud services. It operates in the United Kingdom, the United States, the Asia Pacific, Canada, and internationally. The company was founded in 2013 and is headquartered in London, the United Kingdom.

Babylon Health delivers tailored ‘AI-powered, Physician-led Virtual Healthcare’ to patients in over 15(?) countries globally. Operating in 16 languages across their global network Babylon health helps a patient every 6 seconds. Reviews of the company are met largely with success with a 4 or 5 star rating from over 90% of users worldwide. However, Babylon’s stock price has drastically declined in value since their IPO in October 2021.

Mission Statement:

Product Offering and Services

Babylon separates their operating streams into 3 main lines of service:

-         Value based care

-         Clinical Services

-         Software licensing

Within their value based care stream, Babylon Health generates revenue from capitation(…) for delivery of services under VBC (….) contracts with US health plans and providers. Revenue from capitation for delivery of services under VBC contracts with US health plans and providers. In their clinical services stream Babylon health works with affiliated providers to deliver medical consultations, on a fee-for-service basis or ffs and capitation fees. This includes per-member-per-month subscription fees for virtual consultations. They also use Software Licensing as another revenue stream through selling a digital suite of products to partners who can provide care through their own medical networks. These three lines of service act as Babylon Health's main revenue streams.

Valuations and Financials

Financial Performance Highlights

Babylon Holdings reported its Q1 2023 financial results, showing impressive revenue growth of 1.2x year-over-year, reaching $311.1 million. However, the company also reported a net loss of $63.2 million for the same period It's worth noting that Babylon's stock price has experienced a drastic decline in value since its IPO in October 2021.

Revenue Streams and Business Model

Babylon Health's main revenue streams come from its three operating lines of service:

·       Value-Based Care (VBC): Babylon generates revenue from capitation contracts with US health plans and providers for the delivery of services under VBC contracts. This stream is focused on delivering value-based care solutions.

·       Clinical Services: Under the Clinical Services stream, Babylon collaborates with affiliated providers to deliver medical consultations. They generate revenue on a fee-for-service basis (FFS) or through capitation fees. They also earn subscription fees for virtual consultations.

·       Software Licensing: Babylon's Software Licensing stream provides another revenue source by selling a digital suite of products to partners who can deliver care through their own medical networks.

Financial Snapshot

Babylon Holdings' financial snapshot as of Q1 2023 reveals assets, liabilities, and shareholders' equity, as well as detailed financial figures like net loss, EBITDA, Adjusted EBITDA, and various margins related to their revenue and expenses. The company operates with a debt/equity ratio of -93.8%

Technical Analysis

Babylon Holdings' stock (NYSE: BBLN) has experienced significant price fluctuations and decline since its IPO in October 2021. As of July 26, 2023, the stock price was trading at USD 0.0331, representing a substantial decrease of -46.48%. The company's market cap is $14.10 million with 25.03 million outstanding shares.

Investment Suitability and Risks

While Babylon Health's global network and success in virtual healthcare have been met with positive reviews and an ambitious mission, its financial performance and stock price performance raise concerns for investors. The company reported a net loss of $255.58 million and a net profit margin of -22.14%. The negative trailing PE ratio indicates a loss for the period, making it essential for investors to carefully evaluate risk-adjusted returns and diversify their portfolios when considering investments in BBLN.

Conclusion

Given Babylon Holdings' impressive revenue growth and innovative approach to providing digital-first healthcare solutions, there may be opportunities for future growth. However, potential investors should be cautious due to the company's financial performance, net losses, and significant stock price fluctuations. Evaluating the risks and uncertainties mentioned in the financial reports and understanding the implications of the proposed take-private deal, will be crucial for investors looking to make informed decisions about investing in Babylon Holdings Limited.

Stock Price Timeline and Explanation

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Having successfully completed series A, B and C funding, worth $25mn, $60mn and $550mn respectively, in the six years following its birth, Babylon was taken public in the final quarter of 2021. Babylon made the decision to divert from the traditional Investment Bank IPO route and instead chose to look in the direction of SPACs.

Public listing (October 2020)

SPACs, or Special Purpose Acquisition Vehicles, are blank cheque companies that have no commercial operations. Formed by groups of investors, SPACs raise capital through an initial IPO which is then placed in an interest generating trust account. After the management team has identified a particular target company, it will merge with that company using the money in the trust. This allows the target company to become public without going through an Investment Bank or a traditional underwriter.

During 2020 and 2021, there was a huge surge in the use of SPACs due to excessive liquidity that had arisen from the pandemics over-expansive monetary policy. A key player in the then exponentially growing telemedicine market, Babylon looked to capitalise on its position as soon it could. SPACs offer a significantly faster time to market than traditional routes which seemed most applicable for Babylon at the time. Ultimately, this decision lead to a sharp demise in investor confidence as the share price has dropped 99.99% since IPO.

Ahead of its stock market debut, Babylon was valued at $4.2bn, set to receive $575mn from the merger with the SPAC, Alkuri Global. Typically in SPACs, shareholders have the option to redeem their shares prior to the business combination, for a pro-rata share of the funds in the investment trust. Since the SPAC target company often hasn’t been identified when the SPAC is formed, this procedure incentivises investors who may be worried about risks involved. On the date of the merger, 90% of shareholders chose to redeem their shares despite having all voted to approve the deal. As a result, Babylon was left with just $275mn in cash, $300mn less than originally calculated. To make up for this shortfall, Babylon had to cut staff, cancel two existing NHS contracts early and raise $80mn in additional cash – a disaster.

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Changing consumer demands [DATES]

Babylon’s poor stock performance since its first listing in October 2021 can also be put down to the over inflated state of the telemedicine market at the time. During the pandemic, digitisation within the healthcare industry accelerated sharply, driven by the need to access patients who were forced into self-isolation. In a world where a return to pre-covid life seemed only imaginary, the telemedicine industry was in the forefront of investors’ minds, with Matt Hancock even describing Babylon’s services as “revolutionary”.

However, as the world recovered from the pandemic, the rate of healthcare digitisation slowed as it became less of a pressing concern to many people. Having listed on the NYSE near the peak of this focus, investment into Babylon’s public equity only had room to fall as telemedicine expectations dropped to pre-covid levels. Additionally, the stock market started to peak in October before a long downward trend, driven by an extremely volatile geopolitical climate, along with monetary and fiscal contraction in response to soaring inflation.

Reverse stock split (December 2022)

In September 2022, Babylon received notice from the NYSE that it violated rules stating that listed companies must maintain an average closing price of at least $1 a day, over a 30 day consecutive closing period. In response, Babylon decided to issue a reverse stock split that became effective on 15^th December 2022. By reducing the number of shares outstanding, it was hoped that this would increase the price per share and allow its continued listing on the NYSE. [add share price analysis]

Delisting from stock exchange as part of restructuring (May 2023)

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