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CLOV Stock: Are Short Sellers Doomed?

After reporting blowout second quarter top-line numbers, Clover Health gave short sellers a reason to worry. Wall Street Memes takes a closer look at Clover stock after earnings.

Clover Health reported above-expectations revenues in the second quarter, despite a net loss surge. The Medicare Advantage company may have taken an important step in warding off bears and strengthening its fundamentals.

After reporting earnings, CLOV saw its shares rise to a peak of nearly 11% after hours, and over 15% at the opening bell. Is the company, whose stock is the target of heavy short interest, giving bears a good reason to stay clear? Wall Street Memes digs for an answer below.

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Blowout revenue… and net loss

The highlight of the earnings release was a whopping $412 million in revenues reported this quarter, up 140% year-over-year and well above the $205 million expected by Wall Street. Revenue came from Medicare Advantage premiums ($195 million) and Direct Contracting ($216 million).

Figure 1: CLOV's Q1'21 financial results.

Figure 1: CLOV's Q1'21 financial results.

At the same time, Clover reported a net loss of $317 million compared to a net loss of only $48 million last quarter and a net income of $5 million in the second quarter of 2020.

According to the company, results were impacted by a non-cash loss of $134.5 million relating to the change in the fair value of public and private placement warrants. Also, Medicare Advantage Medical Cost Ratio climbed to 111.0% this quarter compared to 70.1% in the previous year due to COVID-19 factors.

However, CFO Joe Wagner appeared unfazed by the high costs seen this time. He said:

“Neither our results in this quarter nor in the second quarter of 2020 represent the underlying fundamentals of our business. Over time we expect these extraordinary costs to trend down, consistent with our Normalized (non-GAAP) calculations.”

Lastly, lives under Clover management were approximately 129,000, an impressive increase of 126% year-over-year. Medicare Advantage membership and Direct Contracting lives were 66,566 and 62,025, respectively.

According to CEO Vivek Garipalli, the launch of Direct Contracting last quarter and Clover Assistant, each responsible for doubling revenue and lives under management, are reasons to be proud. He looks forward to continued progress throughout the year.

Revised outlook for 2021

Clover revenues and net loss seem to have surprised the company itself. As a result, full-year revenues are now expected to be in the range of $1.4 billion to $1.5 billion – much better than the $810 million - $830 million range communicated in the first quarter of 2021.

There was no guidance for net loss, only adjusted EBITDA loss in the range of $250 million - $210 million. Interestingly, Clover's Q2 net loss of $317 million was higher than the full 2021 net loss guidance of $210 million - $170 million offered last time.

Should short sellers worry?

Clover stock is followed by a larger number of supporters on Reddit – avid shareholders willing to hold their long positions. The meme factor alone could be enough to make short sellers worry about taking the other side of the trade, following upbeat earnings that could support momentum.

In addition, Clover demonstrated this quarter that its Direct Contracting and Clover Assistant have substantial revenue-generating potential. The company’s business model relies on both succeeding, and the signs have been encouraging so far.

Twitter speaks

Clover Health reported second quarter revenues that were well above expectations, although net losses were sizable. How do you see CLOV’s fiscal second quarter results?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)