Weekly Update July 7-11

Important update for free subs + normal premium email

Let’s get right into it!

An Update

We are changing the Investing City free tier a little. Business Breakdowns will be even more irregular than it already is. Instead, we will include a free, above-the-paywall, section in our premium emails that are sent every Friday morning. This will include a stock summary — a company we looked into during the week and we think could be interesting for your further due diligence. These briefs aren’t necessarily “pitches” so much as idea generation for you. Who doesn’t love free stock ideas, right?

So why are we doing this? Well, as our fund has grown, we can’t focus as much time on deep dives that are adjacent to our core research. So I wanted to find a way to still deliver value to free subs. Since this is different from what you originally signed up for, I totally get it if you want to unsubscribe. Truly, no hard feelings.

In service of our fund’s partners, we think there is more value in turning over more rocks than writing up companies that are interesting in general. We do, of course, write-up the stocks that make it in the portfolio and we may very occasionally do a Business Breakdown but I wanted to be clear about the changes. For some of you, this may align more with your desires and for others, like I said, no hard feelings since this is different from what you signed up for.

For premium subscribers, nothing changes except you get even more idea generation :)

Now, here is an example of what the updated newsletter will look like:

Free

Disclaimer: These materials are for information only, not investment advice. Neither Investing City LLC nor Infuse Partners LP accept any liability for actions taken based on this content.

One recent IPO I’ve been researching is Hinge Health (HNGE). The company ticks A LOT of boxes. Founder led, leader in its space, growing revenues 50%, GAAP/FCF positive, recurring revenue, accelerating growth, etc. So what’s the catch? Well, I’m trying to figure that out. The problem is that I can’t really discern a moat here at the moment. Hinge Health is basically the leader in virtual physical therapy. Large employers will pay a per-member per-month fee to Hinge so that their employees have access to this perk. Billing only starts after a member does their first exercise on the app. In fact, members set up their phones and the camera watches them do their exercises and automatically gives tips on their form. The company has over 400 licensed physical therapists on staff but they are able to oversee 57,000 interactions, a 20x increase vs. in-person sessions. This is because AI mainly takes care of the members and the licensed PTs (physical therapists) can be contacted if there are specific questions. This is the whole thesis of this business – use technology to lower costs by automating the delivery of care. It’s a fantastic thesis and PT is just the first wedge into the healthcare space. They have grand visions of moving into other areas and are already doing so in women’s pelvic health and mental health. I can easily imagine an AI behavioral therapist one day treating millions of people. If that sounds like a weird future, it is. But it’s also likely to become a reality. Anything that saves big money and can improve exponentially is a pretty amazing mental model for predicting where the world is headed.

Hinge Health has 20 million lives covered by its employers and health plans. About 500k of this population is considered a member, meaning they have done at least one exercise. Last year, that came out to about $730/year for 530,000 members, doing an average of 34 sessions per year. That is just over $20 per virtual session. That is much cheaper than physical therapy but there are obviously things that a real person needs to do in terms of massaging or assessing a patient. Almost 3% of Hinge’s covered members have engaged with the platform but remember, the company only gets paid when a member starts an exercise program. Then, there are different milestones at which Hinge may get paid its full amount. Each contract could be a little unique but the newest revenue model includes an upfront fee once a member engages and then a per-session fee for each completed session. So it’s not necessarily true recurring revenue – it depends on the activation of new members. I don’t know what would cause less injuries but if employers or health plans feel like they’re not saving money, they could push back on pricing. I’m not sure Hinge has much pricing power, nor do I think it’s that hard to replicate. That’s why I would be hesitant making it a large position at this point. But they are doing interesting things like creating their TENS unit, called Enso where members can get pain relief by electrical stimulation.

I imagine they could white-label their own continuous glucose monitor, or inhaler, or something else to try to gather more data on patients so they can save healthcare costs. The main thing I got out of reading the S-1, was that all of this data could potentially decrease surgeries by identifying patients which might be at-risk for them and proactively putting them on an exercise regimen. That is what people have been trying to figure out for a long time! And that, in my personal view, seems like a great way to lower costs in a very expensive healthcare environment. I’m rooting for this company but they also have two strong competitors in Sword Health and Omada. Hinge is more impressive than Omada but Sword seems to be strong. I can’t quite figure out the moat but sometimes, when a company checks all the boxes, you might need to buy a little to get to know the story. I will keep monitoring this stock, especially as the valuation isn’t crazy…yet. I love the vision and the execution but five years from now, I could see a lot of variations in the eventual path to dominance. That makes me nervous since there are a wide range of possible outcomes.

Ok, now onto the paywalled content — here’s what happened this week…