The time will come
As most everyone knows we are not stock market prognosticators, yes there have been times when we will come out and say it’s a good time to buy or sell but these are rare occasions. However we do receive lots of questions on the companies we follow and many center on whether it’s time to buy or sell. One company that has caught everyone’s attention is Livongo. Given that digital health is hotter than a Billy goat with a blowtorch this interest is understandable.
Now that Livongo has come down from their inflated IPO opening many are wondering where does this stock go from here. Our guess and this is just a WAG the stock will trade sideways moving up one day and down the next. At this stage it’s difficult if not impossible to gauge a true value for the company as they are deal flow mode. Yep you can’t swing that poor dead cat without Livongo announcing another deal or partnership.
It really doesn’t seem to matter much that these deals and/or partnerships don’t involve any money changing hands and in reality, are just PR events but then again, we have seen this movie before and know how the game is played. Nor does it seem to matter much that the Livongo revenue recognition method is shall we say interesting. Never mind that they are not alone in this market, competition is intensifying which will drive fees down these facts, yes, these pesky facts, get lost in the hype.
Let’s be very clear here we believe the company is playing a high stakes game of chicken. They are betting heavily on the greater fool theory, that someone will come along and buy the company before it becomes clear all the glitter isn’t gold. See at some point they do have to execute and make real money. Right now it’s all about the possibility of tomorrow but it won’t be that way forever and they will eventually have to talk about the realities of today.
All these deals and/or partnerships which today do not involve any money must at some point be turned into money. Perhaps the best way to think about this is (and our apologies to all the Cleveland Browns fans) look at the preseason hype for the Browns – heck our beloved Bears too. Before the season all the prognosticators were hyping the Browns and Bears predicting that after years of futility the Browns would make the playoffs and our beloved would end the year in Miami. Well the Browns didn’t make the playoffs and the Bears might be in Miami for a vacation not a game. Simply put the Browns and Bears failed to execute.
The question for Livongo is twofold. First can they get people to sign up for their platform and then can they keep them on the platform. This my friends is what generates revenue and keeps that revenue coming in on a consistent basis. We could care less how many deals they sign what matters is turning these deals into real money.
Just as the honeymoon comes to an end for newlyweds this honeymoon period for Livongo will also come to an end. It will not be breakfast in bed and mimosas but a quick cup of coffee and off to work. They will not be spending their days in paradise enjoying sunshine, they will eventually get back to the real world of earning a living. The question is will this marriage last for the long term or will it disintegrate as so many unfortunately do. As Momma Kliff used to say it’s easy to handle the good times when all that lies ahead is the future the real test comes after the honeymoon period wears off.
