Healtheon/WebMD Tumbles Over 8% After Posting Bigger Loss Than Expected

However, revenue rose to $28.7 million from $12.6 million a year ago.
Author:
Publish date:

Healtheon/WebMD

(HLTH)

posted a bigger loss Friday than Wall Street expected, and its stock fell over 8%.

For the third quarter ended Sept. 30, the online health network reported a net loss of $17.1 million, or 24 cents a diluted share, from a loss of $13.5 million, or 26 cents a share, a year earlier. The smaller loss a year ago translated into a bigger per-share loss because there were fewer shares available. (Healtheon went public earlier this year.) The consensus of analysts polled by

First Call/Thomson Financial

had forecast a loss of 20 cents a share in the latest quarter.

However, revenue rose to $28.7 million from $12.6 million a year ago. Sequential growth was 26% higher than the $22.7 million reported for the second quarter of 1999.

The stock was down 3 9/16 to 39 15/16. (The stock closed down 5 7/16 to 37 1/16.)

The reported results are for Healtheon only, since the merger of

Healtheon

,

WebMD

,

Mede America

and

Medcast

was completed at the end of the third quarter and approved on Thursday.

"We continue to execute on our business plan of securing new customers and strategic partnerships that will help drive Healtheon/WebMD's e-health transaction volumes, expand the company's base of physician users and enhance the breadth and functionality of our offerings," said Mike Long, chairman and chief operating officer of Healtheon/WebMD, in a statement.

Edward Keaney, an analyst at

Volpe, Brown, Whelan

, said the company's revenues were better than anticipated, while the operating loss before depreciation and amortization -- to $12.4 million in the third quarter from $13.3 million a year earlier -- was expected.

Also, "from an operating cost standpoint, the company did better than expected," noted analyst Stephen Fitzgibbons of

Hambrecht & Quist

. Excluding depreciation and amortization, that figure came to $41.0 million, which is up from $21.5 million a year earlier. Fitzgibbons just resumed coverage of Healtheon and rates it a buy and his firm was involved in the underwriting of the company's initial public offering.

However, Keaney warned, "The models for the company are rather stale because the company really hasn't had an active dialogue with investors since announcing the merger back in April."

Presumably that will change after next Tuesday, when officials from Healtheon/WebMD will meet with institutional investors in New York to explain the new company.

Keaney has not had a rating on the company since the announcement of the merger seven months ago, and his firm was involved in the underwriting of Healtheon's IPO.

Growth on both the physician and consumer sides was impressive too. Now, 190,000 physicians use at least one of the company's many applications, while there were 2.7 million unique visitors to the consumer site in the month of October alone. Keaney was encouraged by the rate at which the company is deploying its system to new customers, with enrollments of about 33,000 physicians in the third quarter and an additional 15,000 in October.

"Healtheon is now the critical mass leader in this space," said Fitzgibbons, "with a critical mass of products and services offered and a high-profile list of strategic partners."

Microsoft

(MSFT) - Get Report

has invested $500 million with a further commitment of $250 million and

DuPont

(DD) - Get Report

has put in $220 million. Meanwhile, it's speculated that

News Corp.

(NWS) - Get Report

will fork over $1 billion.

The merger should do much to enhance Healtheon. "It enables the company to add a lot of functionality and partners to its product," commented Keaney. Specifically, the Medcast business provides proprietary content in the form of breaking medical news, education and other information, which attracts physicians. Mede America offers electronics claims processing services, which is a very important part of what physicians look to Web-based transactions to accomplish. The new company is expected to launch its new www.webmd.com Web site on Monday.

"Clearly they have a strong presence, but going forward the company needs to integrate its new products," said Fitzgibbons. "And it's important to get users who are perhaps submitting claims only to using the rest of the functions. It's going to be a cross-selling blocking and tackling exercise."