LVGO Moat - Follow-up

https://seekingalpha.com/article/4358850-livongo-yes-stock-s…

This SA article had what I thought was the best explanation of LVGO’s moat that I have seen. This has been a recent topic of discussion here, so perhaps this will add some clarity. I have copied below the part that stood out the most to me.

"These large channel partnerships are significant for Livongo, because not only do they provide the potential for the company to rapidly scale in a low-cost manner by leveraging an external salesforce, which should help improve long-term margins, but it also provides an element of stickiness with its solution in these channels. Creating partnerships with large healthcare insurers and pharmacy benefit managers is a very complicated and time-consuming process, requiring training on the Livongo platform, alignment of operational support and execution of rollout to members.

While these partnerships are difficult to initiate, once implemented, they become fairly sticky and difficult to unwind. Large insurers and PBMs will be reluctant to switch out Livongo for an alternative platform, given the hassle of re-training and re-operationalizing something new, as well as having members get used to new tools in methodology for condition management, something which may cause member confusion. For this reason, where there is proven return on investment, member health improvements and insurer cost savings, the likelihood that Livongo’s platform would be substituted and replaced with something else will be relatively slim.

Livongo’s platform approach is also key here, because the fact that the business can address multiple conditions with one platform means less contracting, vendor management and sales training for healthcare plan operations teams and insurers who are managing the rollout and servicing of member conditions. It’s difficult for point solutions, even best of breed, to get any traction as healthcare organizations will be predisposed to a single management platform."

40 Likes

This article repeats the conventional wisdom but misses the bulls eye!

Conventional wisdom:

Livongo Health (LVGO) is a $10B business that provides a data science and technology platform for the detection, management and control of various chronic health conditions including diabetes, hypertension, pre-diabetes and weight management.

Investment thesis:

Livongo Health (LVGO) is a $10B business that reduces the high cost of healthcare for its clients by the detection, management and control of various chronic health conditions including diabetes, hypertension, pre-diabetes and weight management of its members.

Sell results, not features!

Denny Schlesinger
Long LVGO

34 Likes

I know Saul doesn’t want a ton of posts on this but I think it’s important to point out that part of LVGO’s moat is likely AI. I can tell you from the experience of my late mom, who died of diabetes complications, and several friends, all of whom are/was very intelligent people, that managing blood sugar is difficult and COMPLICATED and not simply a matter of losing weight. Personal sugar management left the people I know frequently befuddled.

The link below lists 42 factors that one must take into account when managing diabetes including:

Weight
Medicine type
Medicine dose
Medicine timing
Amount of sleep
Amount of stress
Amount of exercise
Carbohydrate type and quantity
Illness
Allergies

And on an on the list goes…
https://diatribe.org/42factors

No matter how intelligent and diligent one is about their health, it’s nearly impossible to perfectly control sugar levels. Because of that, I think AI is tailor made to assist with this problem.

IMO there are two major threats to LVGO: an alternative AI product that outperforms LVGO’s system and continuous glucose monitoring paired with an insulin pump. My guess is that with LVGO’s foothold, it’s less expensive for an insurance company to contract with LVGO than building a better mousetrap. As far as the pump and continuous monitor goes, I think those are cost prohibitive for large scale use, but that might change over time.

Best,
bulwnkl

Long LVGO

28 Likes

a couple of questions just trying to assess growth and rsik:

What percentage of Dexcom users do not use Livongo? I am wondering how effective it is to just use the Dexcon system app (supporting 5 data shares) and not purchase the Livongo service? I see having Livongo capture a long term medical history with AI analysis as extremely valuable to the user and cost effective to insurance companies. But not everybody has insurance and other conditions that make medical professional monitoring a requirement.

Is the contract partnership exclusive with Dexcom for cloud monitoring?

-zane
long LVGO

I got two emails that I think need to be responded in public

Denny,
I so much VALUE your ability to constantly get to the heart of the matter. Sometimes I fear there’s a bit too much wandering in the technical weeds on this excellent board. Along with Saul, you have an incredible gift.

Thank you! As investors we need to find the driver of the investment thesis and that is the benefit to the buyer, not the technology. The technology is just the means to the end.

Hi Denny - will you please go work for LVGO so they can get their marketing message right!

Thanks but no. One has to consider the audience one is addressing.

I had the good fortune to have a wonderful literature teacher in high school, Mr Pitt. He said that William Shakespeare was primarily a great entertainer capable of reaching royalty, intelligentsia, and common people with one script. Everyone went home satisfied even if they took different stories home. Same can be said for Walt Disney, he entertained kids and parents at the same time. Flop with either audience and you are dead.

Now think about Livongo’s audience. I’m addressing investors telling them about the benefits that Livongo offers their paying clients. Now imagine Livongo telling “members” that their real objective is not to improve the lives and finances of the members but to make the greedy capitalists richer. It won’t fly in the woke culture.

Livongo has a difficult problem, how to address three audiences with the same message, clients, members, and investors.

Look out for Number One buy don’t screw up with the rest of your audience.

Denny Schlesinger

13 Likes

Hi Zane,

What percentage of Dexcom users do not use Livongo? I am wondering how effective it is to just use the Dexcon system app (supporting 5 data shares) and not purchase the Livongo service? I see having Livongo capture a long term medical history with AI analysis as extremely valuable to the user and cost effective to insurance companies. But not everybody has insurance and other conditions that make medical professional monitoring a requirement.

Is the contract partnership exclusive with Dexcom for cloud monitoring?

I can’t say for sure, but I would guess that at this point only a small percentage of Dex users use Livongo. I base this on a poll I did on two of my FB Type 1 support boards last winter sometime. One board currently has 12,677 members; the other, 5, 048 members. I’d venture that less than half have a Dex from peoples’ posts. I asked who used Livongo and how they liked it. I think only 4-5 people responded.

I wear a Dex G6. Dex’s “Share” capability is great but it’s in no way a substitute for what LVGO is doing. Share just lets a friend/relative see your numbers. There’s no advice or prodding.

LVGO has partnerships with the other cgm manufacturers too, not just Dexcom.

Fafar (Kathy) :slight_smile:

.

6 Likes

Livongo has a difficult problem, how to address three audiences with the same message, clients, members, and investors.

Maybe they need 3 messages. Its not unheard of. Personally I thought the basic message summarized a while back by the TMF recommendation was pretty convincing. But I tend to draw intuitive conclusions.

“Livongo has a difficult problem, how to address three audiences with the same message, clients, members, and investors.”

Good points as always, Denny.

How about this for a starter pitch to Livongo constituents:

Members who use Livongo diabetes services, for example, will save $1200 for supplies and equipment up front alone, have 24/7 consulting services available, and reduce visits with doctors and ER. Savings to insurance providers is considerable and immediate.

It’s a land grab now before serious competitors enter the space as LVGO is growing revenue at 100+% with dollar based retention at rates as good as it gets, while making money during this hyper growth period.

Compelling!

5 Likes