Doximity IPO: Should I Invest?

You may have received an email from @doximity, the “Linked In for doctors” app, letting you know they are going public and offering you first dibs on their stock IPO.  And you may be wondering, hmm, WTF is this? Should I invest?

First off, WTF is an IPO?

Let’s break it down from the beginning, for folks who don’t know shit about stocks. 

Let’s back up: WTF is a stock? 

A stock is a share of a company.  If a company is a pie, a stock is a slice.  When you buy a share of a company, you now own a tiny tiny slice of it.  Why would a company sell millions of pieces of its pie to the world?  Well, to raise money.  A company can raise money in two ways: take out a loan, or sell its stock. 

Stock Exchange

Publicly traded stocks are bought and sold in a stock market (aka stock exchange, a stock store if you will). In the US, the two biggest stock exchanges are the New York Stock Exchange (NYSE) and the NASDAQ. Doximity would probably be traded on the NASDAQ, since the NASDAQ market is for tech-y shit, and Doximity is a tech-y app.  The ticker symbol is DOCS, cute.

So back to IPOs. 

IPO stands for Initial Public Offering. 

Initial = first time, Public = Publicly traded (available to the public for purchase) Offering= stock.  The stock is being sold publicly for the first time.  And when that happens, it’s called an IPO.  When a company’s stock is sold publicly, that’s called “going public”.  Before a company goes public, it’s a private company—that means that the company can have stock, but it’s sold to private investors, not traded on a public stock exchange. 

What is Doximity offering me exactly?

Doximity is setting aside 15% of its shares for doctors who regularly use the app.  This means that we can purchase the new stock at the initial public offer (IPO) price, which is the price that is set before the stock starts trading in the market. 

The IPO price is not the same as the opening trading price.

Why does this matter? Like, why not just buy it when the damn stock store opens, I mean who cares?  Well, it matters in the event that when the store opens, it could turn into a 4 AM black Friday crowd outside Walmart—they are willing to start a stampede for their TVs as soon as the door opens.  Stampedes can happen in the stock market too.  If the hungry masses yearning to purchase Doximity stock bust down the doors when the opening bell rings, then the stock price will shoot up.  So, by purchasing the stock, well, reserving, your stock ahead of time at the IPO price, you have the chance to buy it cheaper than the general public. 

For example, Airbnb’s IPO price was $68/share.  When it began trading on the NASDAQ, the price was $146.  So, you could’ve sold your shares right at the open and made bank. ($146-68=$78 profit per share.)  Airbnb offered 7% of its stock at the IPO price to its users (people who listed rentals with Airbnb) ahead of time.  There’s a lot of buzz and hype that goes into the initial trading price.  So, between the time the IPO price is set, and the opening day, the hype can cause the initial trading price to be a lot higher than the IPO.  This is what happened with Airbnb. 

Keep in mind, there is no indication that there will be a 4 AM post-Turkey day crowd piling up at the Doximity doors, and there’s also no indication that there isn’t.  We have no idea. And that’s the whole deal with buying stock.  We have no idea what it will do.  We do our best to make educated guesses based on the company’s reputation, and projected performance, and usually, based on the stock’s past performance.  Airbnb had a lot more hype than Doximity can expect, because Doximity is niche—known to doctors, pharma and healthcare industry peeps.  And really, I’m not all that sure doctors have our fingers on the pulse when it comes to Doximity.  A lot of us were required to make an account for one reason or another, and don’t really know what it’s for.  Or, we like it because it hides our cell phone number so we can call patients.  I wouldn’t say it’s our go-to social media app. It’s definitely not caught on like Facebook or IG for doctors.

When it comes to an IPO,  there is no past performance to base any purchasing ideas on.  So it’s a total guess.  There might be nobody wanting to buy this dog, and the price plummets to zero.  Not likely, but possible.  How likely? Who the hell knows? We have no history of stock performance to base it on.

So, can I make money off an IPO?

Yes, you can.  And you can also lose money.  Chances are that you’ll make money over time.  You might have to hold the stock for a longer time to see it do well.  But with good companies, most stocks rise over time, like Apple, Microsoft, Amazon, Netflix, Facebook—all these opened in the $20s, and now are worth hundreds.  But how long did it take to get there? How many downturns did the price go through and shareholders weather? 

Going back to our example of Airbnb, which went public in December 2020, the price fluctuated.  As an IPO price purchaser, you would’ve had a profit this entire time.  The lowest price it has traded at is $124 and the highest is $216.  In contrast, if you had bought at the general public’s opening share price of $146, you’d have lost money at one point, and you’d be ahead by $3 a share today.  So you can see there are definite advantages to the IPO price. IF the stock does well.

So the questions to ask yourself are:

1. How long do I plan on holding this?  Is the opportunity cost worth it to me? (in other words, is there something more useful this money could be doing instead of waiting for Doximity to get profitable?)
2. With the number of shares I’m buying, what kind of profit could I expect?

For example, the max investment is $5000.  We don’t know the stock price yet, because it hasn’t been announced.  If the IPO price is $25 per share, then for $5000, we could buy 200 shares.  If it increased 100% to $50 a share (a possibility, given the tech IPO trends lately) for a profit of $25 per share, you’d make $5k (on top of the $5k you invested). The risk is that you don’t know what it’s going to open at.  If it opened wild ‘n crazy high, take profits.  Otherwise, hold on to it for a while and see.

So, should I invest?

Now, to answer the question.  Here’s how you know:

• Do you understand this investment?  Like, how to buy it, sell it, how you would make or lose money on it?
• Would you read the prospectus in order to understand the financials of the company, and its business model? The answer has to be yes to both.

The Prospectus: Premium Money Nerd Gossip 

The prospectus is a document that all companies must file with the Securities & Exchange Commission when going public.  It provides highly detailed financial information about the company, so that an investor can make an informed decision on whether to invest. This is a very interesting document.  Most people don’t read it, but I find it fascinating. It’s all of the company’s money – out on display, in detail!  It’s money nerd gossip at its finest!  How could you not read?  Plus it lays out all the possible risks that the company foresees for itself—every potential disaster the company could face.  (Just like with an informed consent, you won’t want anything to do with anything after reading this potential list of disasters.)

Do you need the money you are investing? Cause it could be tied up for a bit, or lost. This is a new stock and it has no track record.  We don’t know WTF it’s going to do.

My thoughts…

I read the Doximity prospectus, and overall, financially the company is doing well.  It is consistently making a profit over the past 3 years.  However, if you look at the risks of the purchase, a few stand out.  The company is quite dependent on a few customers.  If one of these were to bail, then the company would take a hit. It needs to broaden its horizons, in terms of customer base. Like, it needs more customers.

Then there’s the business model.  It puts Doximity in a bit of a tough spot, and it’s a sticking point for me.

I am concerned that their members are not their customers.  We, the physicians, are the members.  Their customers are the pharmaceutical manufacturers and health systems.  The drug companies pay Doximity for access to physicians, to educate them on their products.  The healthcare systems pay Doximity for access to physicians, for recruiting and marketing purposes.  So, even though Doximity says it’s physician-first, their actual customers are the pharmaceutical and healthcare companies.  The same companies that we, as physicians, sometimes have major ethical and moral injury conflicts with.  So at the end of the day, Doximity answers to pharma and healthcare systems, not physicians.  They are attempting to serve three groups— three groups that often have divergent interests— big pharma, healthcare systems, and doctors.  And doctors are the least powerful among these three.  Trying to serve 3 different masters with potentially conflicting interests is not a win-win business strategy.  One of them will win out as the main customer, and that is who Doximity will work for.

“Our customers are primarily healthcare organizations, in particular pharmaceutical manufacturers, health systems, and medical recruiting firms, who purchase subscriptions for our Marketing Solutions, Hiring Solutions, and Telehealth Solutions.”—Doximity’s Prospectus

In fact, doctors are the content generators of the Doxmity app.  Our participation is critical to the success of Doximity.  If we don’t show up, then no one will pay Doximity to market to us.  It’s the same business model as Facebook, Linked In, and pretty much all social media.  “If you’re getting the service for free, you’re the service.”  Something along those lines.

This is a tricky situation— the money comes from pharma and healthcare, but without us doctors, there’s no app.  So who does Doximity answer to in the end?  They are straddling three worlds and that might put them in a predicament.  You can’t please everyone, so why set yourself up for a potential disaster by trying to please three different groups with opposing interests?

TL;DR

I don’t know.

I think the only reason to invest in this stock is to make money.  Not to feel good about it, like you’re part of something special, or that Doximity cares about you as a physician.  I don’t say that to be harsh or cynical.  The fact is, doctors are the content that the app requires for functioning, and this offer is a way they can recruit some good will, and get physicians to buy in, literally, thus recruiting physicians to want the company to succeed, by using it more.

The actual customer of Doximity is pharma and healthcare, and when have doctors fared well with these two groups?  My point is, all of this is finance driven.  The goal of Doximity is to make money. As it should be, it is a business.  Not 100% certain about the doctors first mission.  It’s nice, but when push comes to shove, Doximity has to answer to its real customers.

Now on to the real question— can you make money from this?  The answer is who the hell knows?  While an IPO price is often lower than the initial trading price, there’s always the possibility the trading price might be lower than the IPO price.  Although most good companies’ stock increases in value over time, sometimes it doesn’t. (Ford’s has been in the shitter until the past few weeks!)(Sears, I’m also looking at you.)  The question is, how long would it take to become profitable, and how much profit are you seeking?  Because the stock has never been traded before, there’s no way to know the answer to either of these questions. (ie how it will perform).  This is a smaller, more niche brand than Airbnb. When Airbnb went public, there was a lot of buzz and hype, and that drove up the traded share price well above the IPO price, so investors were immediately profitable.  I don’t know that Doximity is big enough to generate that kind of hype.  So chances are, the share price could remain close to the IPO price for quite some time.

The max amount you can invest is $5k. Ask yourself— is this a ton of money to have tied up for a while, or lose completely?  Will I be negatively affected if it takes a few years to see the profit I want? (Of course, with no track record, it’s impossible to predict what potential profit there could be.)

If I had to guess, I’d say the price will probably go up and down for a day or two, then trend up over a longer period of time—months to years, and that eventually a profit will be made.  I don’t think there’s enough hype to make this one shoot off at the gate, but it will probably be volatile for a day or so and then pipe down for a slow rise over time.

I wouldn’t consider this some wild ‘n crazy route to wealth, but if you have $5k and you think it would be fun to watch it plump up a bit, or don’t care if you lose it, then go ahead.  If $5k is a lot to lose, then put it in Ye Olde Safe Haven: a total stock market index fund.  And for godssakes whatever you do, don’t decide based on FOMO.  If you want to have your shit together as an investor, there’s no room for FOMO in your portfolio.

And I say that with love 😉