HLTH's (NASDAQ: HLTH) primary business is its investment in the online health information website WebMD Health (WBMD). With 2008 sales of $382.7 million, HLTH Corp. provides ad-supported medical content to consumers and private online portals for employers and professionals to manage health records. As of first quarter 2009, HLTH owned 84% of WebMD Health (WBMD), which is its only business segment.  95.7% of HLTH Corp's revenue and return on investment comes from WebMD's healthcare-oriented website via the website's advertisements and subscriptions to its IT-based healthcare management service. The remaining 4.3% of HLTH Corp's revenue come from WebMD's magazine publishing segment.
With healthcare costs increasing an average of 7.6% each year since 2000, employers and healthcare providers are moving medical records online for lower costs.   The increasing revenue that WebMD receives due to employers moving health records online is a large contributor to WebMD's average 21.8% year-over-year increase in revenue since 2006. This corresponds to the 19.8% increase in HLTH Corp's WebMD business segment.
WebMD depends on contextual advertising on its website for revenue, with 72% of the company's revenue coming from advertising as of first quarter 2009. Such a dependence makes it vulnerable to general economic conditions. In the third quarter of 2008, a weakening of the U.S. economy caused WebMD to revise their 2008 revenue forecasts downward by 4%. WebMD's online advertising increased by 20.3% over that time, in line with the revised forecast.
|Select Financial Metrics(thousands) ||2006||2007||2008|
|WebMD Revenue as % of HLTH total Revenue||22.8%||100%||100%|
HLTH Corporation was previously known as Emdeon. In May 2007, the company sold all stock of Emdeon Business Services and renamed itself. Due to this, HLTH total revenue decreased by 63.5% or $577.2 million from $908.9 million in 2007. The loss resulted entirely from HLTH's decision to sell all holdings of Emdeon Business Services.  Thus, the divestment also resulted in a 78.5% decrease in operating costs. The increase in revenue due to the company's investments in WebMD amounted to $98 million and minimized the shock to the company. Due to the selling, HLTH Corp's 2006-2008 net income figures are ambiguous. In essence, the company's 2008 net income has decreased by a proportionate 26.8% since 2006.
With the previous investments sold, the company focused on planning further operations with WebMD Health (WBMD). In January of 2008, HLTH Corp planned a merger with WebMD and expected to complete the merger quickly due to HLTH's 84% stake in WebMD. However, the 2008 financial crisis forced HLTH to withdraw the heavily planned merger with WebMD Health (WBMD) in October 2008.  The merger termination contract specified that HLTH was responsible for the costs that WebMD had incurred due to the planned merger. For the first nine months of 2008, the merger planning process and costs have totaled to roughly $6 million with no return on investment due to the mutual cancellation of the merger.
Excluding this merger cost, HLTH Corp's operating costs for the year of 2008 were $138.4 million, or 36.7% of the revenue. Since 2008, HLTH Corp's operating costs have increased by 17.9% almost entirely due to the company's focus on marketing and selling WebMD's advertisement and health information services. General administrative costs declined by 14.2% as a result of the selling of Emdeon Business Services.
The U.S based online advertisement revenue optimization service Pubmatic conducted a survey in the fourth quarter of 2008 and reported that there was a significant decline in Q4 2008 on a year-over-year basis. Large advertising websites such as Google and Yahoo had average online advertisement prices decline an average of 54%. Medium-sized websites such as WebMD Health (WBMD) had prices decline by an average of 12%. Due to the 2008 financial crisis, most companies had to decrease the overall advertisement budgets. Since 72% of WebMD's revenue come from online advertisement hosting, WebMD has seen a decline in revenue growth. WebMD issued a warning and a lowered earnings forecast specifically citing problems in the company's advertisement revenue.
As of 2008, 23.6% of WebMD's revenue comes from the fast-growing sector of healthcare database management.  WebMD assists healthcare workers by offering private portals to employers, healthcare providers, and hospitals to help manage records online. Since 2005, there has been an 18.4% increase in hospitals using digital healthcare services and digital patient records. HIMMS, a market research unit, reports that in 2008, hospitals using IT services increased by up to 10%. With 1620 out of the roughly 5700 hospitals using HIT, HIMMS analysts report that the U.S hospital IT market is nearly $33 billion in the US. Similarly, Credit Suisse analysts estimate that $30 billion dollars of opportunity exist globally for healthcare information technology services. They also report that although the 2008 financial crisis slowed spending on IT in the short term, the migration to IT-based healthcare is inevitable. The emergence of the electronic medical record has helped hospitals manage data efficiently. Whereas transportation and human error were important factors in paper healthcare systems, digital systems are instant and accessible without error. Hospitals, insurance agents, and employers use IT services to ensure smooth performance, ease of operability, proper patient care, and financial flexibility. While the adoption of IT services to manage health institutions has been slow, there is increasing demand for permanent IT-based healthcare systems.  HLTH Corp, WebMD Health and other companies that offer health information services have the opportunity to provide their services to health institutions in the long term.
With healthcare costs increasing on an average of 7.6% each year since 2000, employers and healthcare providers are moving medical records online or lower costs.  Rather than spending for health insurance or visiting the doctor, people are increasingly self-reliant for healthcare. Similarly, employers are moving medical records online rather than hiring doctors. In 2008, a Harris Interactive reported that 61% of all adults U.S, or 150 million people have gone online to obtain healthcare information. As more countries modernize, more people start to rely for online help due to rising healthcare costs. A Harris Interactive survey reported that 86% of internet users who consult health websites find their help reliable. Reliable information ensures sustained online traffic for health information. Since WebMD Health relies on the internet for revenue, reliability and global modernization means larger web traffic and larger ad revenues. WebMD has been growing at an average of 21.8% year over year since 2006 exclusively due to larger web traffic, ad revenues, and private subscription services.
WebMD's public network of sites competes with portals hosted by Yahoo! (YHOO), MSN, and AOL offering health and wellness advice. The market for online health services and digital health records is becoming increasingly competitive with Google's launch of Google Health and Microsoft's launch of Healthvault.
|Company||Monthly Unique Visitors |
HLTH Corporation's competitors for WebMD's health record management portal include:
|Name||2008 Operating Revenue (in millions) ||2008 Net Income (in millions) ||2008 Research & Development (in millions) ||2008 Cost of Sales (in millions) ||2007 Market Share |
|WebMD Health (WBMD)||$382.80||$26.70||$0.00||$138.40||1.90%|
|Allscripts Healthcare Solutions (MDRX)||$312.60||$12.4||$0.00||$157.40||1.60%|