Oscar Health IPO Price: Reactions and Analysis

Oscar Health: Re-emerging in the IPO Landscape

While companies like Lemonade, Root, and Metromile have recently attracted significant attention within the insurtech sector, Oscar Health has remained somewhat under the radar. However, as the 2012-founded company prepares for its initial public offering, it is now gaining increased recognition as a pioneering tech-focused insurance provider.

Examining Oscar Health’s IPO Pricing

Today, we are analyzing Oscar Health’s proposed IPO price range to assess how the market currently values this health insurance business, which is presently operating at a loss.

It’s worth remembering that Oscar Health was previously valued at approximately $3.2 billion in March 2018, according to PitchBook data. This valuation is now somewhat outdated, as the company has secured substantial funding rounds since then – details of which can be found in venture capital databases like Crunchbase.

A definitive private valuation figure for Oscar Health remains unavailable. Nevertheless, with the company now aiming for a $32 to $34 per-share IPO range, a detailed valuation analysis is possible.

Valuation Considerations

We will now calculate key valuation metrics to determine whether Oscar Health represents a compelling investment opportunity at its proposed IPO price.

The goal is to ascertain if the current pricing reflects a reasonable assessment of the company’s potential, or if it is comparatively overvalued or undervalued.

Understanding these figures is crucial for investors considering participation in the IPO.

Oscar Health's Potential Billion-Dollar IPO

Oscar Health is aiming to secure up to $1.21 billion through its initial public offering, representing a substantial financial undertaking. The company intends to offer 30,350,920 shares to the public, alongside an additional 4,650,000 shares allocated to its underwriting firms.

Furthermore, existing shareholders are planning to sell an additional 649,080 shares. Following the IPO, Oscar Health is projected to have approximately 197,037,445 Class A and B shares outstanding, potentially increasing to 201,687,445 when including shares reserved for underwriters.

Based on the proposed share price range of $32 to $34, the company’s valuation could range from a minimum of $6.31 billion to $6.86 billion, depending on the final share count and price. This represents the company’s initial IPO valuation.

Oscar Health also has the option to sell up to $375 million worth of its shares at the IPO price to three separate investment funds. However, the company clarifies that any expressed interest is non-binding at this stage.

To determine the fully diluted value, it’s necessary to consider all potentially outstanding shares, including those associated with vested employee stock options. Renaissance Capital estimates a fully diluted valuation of around $7.7 billion, utilizing the midpoint of the proposed price range. TechCrunch’s assessment is slightly higher, though the difference is relatively insignificant given the inherent estimations involved in valuing vested stock options.

Considering this $7.7 billion valuation, how does Oscar Health compare to other companies? Is it being valued like a technology firm? The answer is surprisingly, yes.

With full-year 2020 revenues totaling $462.8 million, the $7.7 billion valuation translates to a revenue multiple of 16.6x for Oscar Health.

This valuation multiple is reminiscent of SaaS companies, despite the fact that Oscar Health experienced a contraction in size last year and operates with what is effectively a negative gross margin!¹

The IPO market has witnessed several unusual valuations in the past year. While I’ve generally accepted these trends, I don’t necessarily agree with how growth stocks are being valued, and can rationalize some tech valuations.

However, Oscar Health does not fall into that category.

As a comparative example, Anthem, another insurance provider, currently trades at a multiple of just 0.63x its trailing revenue. Its price/earnings ratio stands at 16.41 (according to Yahoo Finance), representing its closest approximation to a 16.6x ratio.

The disparity is striking: why is Oscar Health, which experienced a decline and reported losses last year, valued at a significantly higher multiple of revenue than Anthem, which grew last year and generated $4.6 billion in net income, alongside over $7 billion in EBIT?

This valuation remains unclear.

It’s not to suggest any disrespect towards Oscar Health. If the market is willing to pay $34 per share, the company should capitalize on the opportunity and focus on improving its underlying business. However, the willingness to pay such a premium for Oscar Health shares appears inconsistent with prevailing market data.

The initial pricing indications for the Oscar Health IPO suggest that public investors may be exhibiting irrational exuberance. This is an opportune moment for the company to go public.

¹The “InsuranceCo Combined Ratio” from Oscar Health is used as a proxy for gross margin in this analysis.