Piggybacking on the SPAC (special purpose acquisition company) mania in 2020, Clover Health plans to go public through a reverse merger with Social Capital Hedosophia Holdings Corp. III — the third SPAC from Chamath Palihapitiya. What business is Clover Health into and how does it make money?
While many observers have pointed to a bubble amid the spate of SPACs in 2020, they continue to garner interest. Earlier this year, Bill Ackman floated a SPAC. In December, SoftBank, the leading private equity investor, also announced a SPAC to acquire a tech company.
What does Clover Health do?
Clover Health is a health insurance company. It offers Clover Health Medicare Advantage plans. Since Clover Health's inception, it has been among the fastest-growing Medicare Advantage companies in the U.S. The company uses technology to enhance its offerings. Its software Clover Assistant uses machine learning and data to help physicians serve customers better.
Who owns Clover Health?
Vivek Garipalli, the majority shareholder, co-founded Clover Health. Garipalli and Clover’s President Andrew Toy will rollover their entire stake in Clover Health after its merger with Social Capital Hedosophia Holdings Corp. III.
Clover Health isn't profitable yet
Clover Health isn't profitable yet like most of the other SPACs that listed in 2020. However, the company’s losses have been narrowing. In the first half of 2020, Clover Health posted a net loss of $23 million on revenues of $338 million. In comparison, in the same period in 2019, the company posted a net loss of $233 million.
In the first half of 2019, Clover Health's net loss was even higher than its revenues of $231 million. Even after adjusting for the $131 million loss of derivatives during that period, Clover Health posted a massive loss. Most of Clover Health’s revenues come from the premiums that it collects from customers.
Clover Health's IPO date
Clover Health will merge with Social Capital Hedosophia Holdings Corp. III in January 2021 and start trading on Jan. 8. The stock would trade under the ticker symbol “CLOV.” Its warrants would trade under the symbol “CLOVW.”
Is Clover Health a good investment?
Clover Health is growing at a fast pace. The company covered 41,143 members in 2019. The number of members is expected to rise to 273,000 in 2021, according to the one-pager shared by Palihapitiya. The members are expected to more than double by 2023 to 589,000.
The company is expected to post revenues of $880 million in 2021 and $1.72 billion in 2023. The SPAC merger would value Clover Health at an enterprise value of $3.7 billion, which is 4.2x its 2021 revenues. The valuation multiples look reasonable considering the big market opportunity that Clover Health can tap.