Somebody didn't like something. They gave up all their gains today (stock price) in after hours trading. Down 4.63%. And that's after their earnings announcement.
Interesting numbers. Forget residuals for a moment, though you really shouldn't, but I can't run the numbers with them.
They had revenue of 26.3M and submitted 114,500 apps, meaning they earned $229 per app submitted. Yeah, there is the as earned vs advance, but my guess is they recognize revenue as earned, and that would mean they have a rolling book of business that they are 'earning' from.
This begs the question:
- What is their taken rate? Can't be more than 1 in 2.
- What is their decline rate?
- What is their retention ratio - Has to be in the tank.
Interesting model. All the things we try to avoid, but yet, they make money hand over fist. I'm doing something wrong.
By the way, they spent $9.5M in advertising, on revenue of $26M for the quarter. How many of us spend 36% of our gross revenue to advertise ourselves? There might be a lesson here.
They spent 14% of the revenue on the guy on the other end of the phone, $3.6M. For every dollar spent on the phone talkers, they earned $7.25 (in very round numbers).
True, only $24M and change was from commission, they didn't divide this up based on service and new business. Given their total 'membership' vs their annualized new apps, I think its safe to assume the bulk of the commission is new business.
You could probably have 20% of it as service. Even 50%, but the higher the service goes, then the attractiveness for them to write new business is really bad. If you remove part of the commission as service, then the cost of new business goes up, and it also means the taken rate has to be even lower.
Of course, we all think of the fact we need to make money on policies we write. It is likely that they are willing to spend a significant amount more to help get better deals on services. They are still a seriously growing company.
Acquisition cost per individual on IFP submitted applications (16) $ 55.41
16) Calculated as marketing and advertising expenses for the period (see
note (9) above) divided by the number of [COLOR=olive]individuals[/COLOR] on IFP
applications submitted on eHealth's website during the period. [COLOR=darkorange]This
metric may not reflect the true acquisition cost.[/COLOR]
Just as I've suspected all along. Fuzzy math
Apparently, they are breaking down most of their number into "mouths." Example: One family application has mom, dad, two kids. That isn't "one" application to them -- it is four. As in 4 "individuals."
So if the average family is 2.6 people, their acquisition cost is something like $144 per application. And then on top of that, you figure in their "bounce" rate which is hideous. Like 3 out of 4. Although they had 114,000 applications for the QUARTER, they only had 115,000 new "members" for the YEAR. A placement ratio of 1:4, meaning that 3 out of every 4 applications submitted is declined, rejected, etc.
So if you multiply out their acquisition cost on placed business, not submitted which is what is reported, they may be spending something like $576 PER POLICY (144 x 4).
eHealthInsurance offers thousands of health plans underwritten by more than 175 of the nation's leading health insurance companies.
More than 175 "of" the nation's leading health insurance companies?
There AREN'T 175 health insurance companies to start with!
How in the hell are those idiots coming up with that? This is something I have seriously contemplated bringing to the attention of Ins. Comm's in several states. This is underhanded unfair competition. They create the false impression that they have many "secret" plans or companies that other licensed agencies don't have or can't get for some reason.
Remember--health insurance is regulated on a state to state basis. When a resident of Nebraska logs onto ehealth, the impression is being created that ehealth offers health insurance plans from "more than 175" different insurance companies.
That's the standard list of "competitors" for ehealth.
Competitors?
Allianz?
Nippon Life?
See anything in common?
They are being "compared" to insurance COMPANIES. Why has everyone been brainwashed into thinking ehealth is something other than what it is--an insurance AGENCY.
Competitors? You want a list of actual competitors? Try this:
Don Smith, insurance agent, Atlanta GA (pays norvax $350 month to operate an online quoting service)
Bubba Joe Watkins, insurance broker, Deerfield, IL (pays Quotit $175 for a quoting engine in 3 states).
Scheez, and you guys thought I had a burr in my saddle about G/R.
safe to assume the bulk of the commission is new business.
No argument here. Of course it is all speculation but has some veracity. Carriers that work with eHealth (and similar entities) enjoy a love-hate relationship.
They love the premium.
Hate the not taken rates and low persistency. Also there is more service required by the HO vs. agent produced business.
18% to the bottom line would be considered very healthy by most business experts.
True, if you are looking at profit margins.
Their cost of acquisition is quite high, much higher than any agent. A bit surprised they only wrote 114,500 new apps. Just a wag, but their not taken rate could be in the 20% range and 6 month persistency (on non STM biz) is probably low as well.
I think if you were to break it all down you would see a business model that really isn't all that impressive compared to a full service agent. It is good for what it is but nothing that is a threat to a good agent.
There AREN'T 175 health insurance companies
I haven't counted them in a while, but you probably have at least 60 Blue plans. Add in carriers that operate in one state by UHC another
As AMS and still another as GR. Coventry is in something like 18 different states, each one is a separate company. KP is a separate company in each state where they operate.
Don't confuse common ownership with operating as a separate company.
ehealth 1st Quarter Results
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