Doximity IPO: Everything you need to know about Doximity

What does Doximity do?

Doximity has been described as a "LinkedIn for doctors". Reuters says its 1.8 million members represent a remarkable 80% of doctors in the United States. It provides a range of services that facilitate:

Doctor-to-patient contact, via one-tap video calling:

• A search facility that allows doctors to find other medical professionals in seconds
• A user-friendly news and research facility
• A "fax without a fax machine" facility

Its pledge to house what it calls a "Universal Clinician Directory" is perhaps its most powerful aspect and the idea is that no doctor should ever have to "Google another provider again."

Doximity was launched in San Francisco in March 2011 on the back of $10.8 million in venture capital funding. It took in further investment of $17 million in September 2012 and $54 million in April 2014.

How did Doximity proceed to an IPO?

In its fiscal year ending March 2021, with a full year of pandemic-enforced remote contacts between doctors and patients, Doximity revenues proved spectacular. They jumped by 78% to $206 million while net income jumped 70% to $50 million.

It appeared to the company's founders that now was the perfect time to invite investment from the public. However, when unveiling its IPO prospectus in May 2021, Doximity announced it would allocate up to 15% of shares in the offering to doctors through a "reserved share program."

That meant eligible doctors would have stock reserved for them at the price as a select group of institutional investors. Uber and Airbnb had similar schemes to enable the people who had helped build their networks - drivers and property owners - preferential terms.

The IPO could barely have been more of a success. Its blockbuster public debut on June 24 saw shares opening more than 58% above their offer price. The stock, trading under the ticker symbol “DOCS”, closed at $53, up 104%, on its first day, valuing the company at $7 billion.

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What has happened to Doximity's shares post-IPO?

Doximity stock continued to perform strongly to the end of June, hitting $58.35 on June 28 before some profits were locked in during early July. However there was no indication at this point that the stock was overvalued: it nosed up again on July 7, just shy of the $50 mark.

Does Doximity make a profit?

Doximity has achieved a rare double in the world of tech start-ups: rapid growth and strong profits. It does through managing operations in a sober fashion, resisting spending excessive capital while it works out how to retain profitability at each stage of its growth.

One could argue that it is a good example of a scalable business model.

Doximity retains growth and profitability by keeping marketing and sales expenses low and did not need to use the money it raised in 2014.

It uses "the rule of 60" to ensure it chalks up profits annually. This states that the sum of the revenue growth rate and profit margin must be greater than 60. In the fiscal year ending March 2021 its rule of 60 calculation amounted to 102 — 78% revenue growth plus a 24% net margin.

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How does Doximity make money?

Most of Doximity's money comes from ad revenue. Specifically, drug makers, many of whom have marketing budget to spend in the light of the pandemic, are keen to use such a strongly targeted platform to peddle their wares. Doximity estimates this market to be a $7.3 billion opportunity.

And the good news for shareholders is that it is very hard for anyone else to just wade into the market owing to laws concerning the handling of medical information and verification of doctors.

Interestingly, the markets for recruiting doctors and telehealth - video consultations and the ilk - are even larger — but are much more competitive because both are less heavily regulated.

What is the business strategy of Doximity?

Clearly, investors should carefully consider whether Doximity can sustain its rapid growth before deciding whether its stock should be bought or sold.

CEO Jeff Tangney has already warned that the 2020-21 numbers cannot be realistically repeated. But he still expects another 10 years of high growth.

Outlining his plans to Forbes.com, he explained: "Our net retention — upsell minus churn — is up 53%. We land and expand. This year we sign up the vascular surgery department. We walk to the next floor and sign up neurosurgery and orthopedic surgery.

"We have a master service agreement which incorporates a reference selling model and makes it less costly to add a new department after the initial sale."

Of course, such a successful IPO equates to some handy cash in the bank.

But it's not going to be spent any time soon. Tangney said: "We will not bet the farm. We will not acquire for revenue. Our largest customer provides us $24 million in revenue, 80% more than in 2020.

"The proceeds are mattress money. We might use it to acquihire [the practice of acquiring companies primarily to recruits its employees, rather than gain control of its products]."

Who are the senior staff at Doximity?

• Jeff Tangney, co-founder and CEO
• Shari Buck, co-founder and SVP People & Ops
• Nate Gross, MD, co-founder and chief strategy officer
• Anna Bryson, chief financial officer
• Joe Kleine, chief commercial officer
• Jey Balachandran, chief technology officer

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