What went wrong with Practo?

Practo, which calls itself ‘Your Home for Health’, was the poster boy of digital healthcare until a few years back. It started of as a listing platform for doctors and helped patients discover relevant doctors & clinics. Over the years, Practo has expanded its offerings into hospital management, medicines delivery, diagnostic tests booking and insurance, among others. It has raised funding from marquee investors including Sequoia, Matrix Partners, Tencent etc. But not all seems to be going well. In Aug’20, Practo raised a fresh $32MM round with 50% lower valuation — Practo was valued $620 million in its series D round in January 2017. Current round valued the company at ~$300million. And this down round came despite the the business witnessing strong tailwinds from Covid (more on this below). So what went wrong? Can Practo correct its course and replicate the success seen by global players such as WeDoctor and Teledoc? I would leave that for you to decide, but first, let’s understand a bit about the company and some key stats/ metrics about the business.

About the company:

  • 2 sided platform for doctors and patients –
  • Patient side use cases: Search for doctors + online consultation, book diagnostic tests, order medicines and health products, store medical records, healthcare articles
  • Doctor side use cases: Subscription for listing of clinics to get reach (ad slots), Clinic management software, Software for online consultation of patients, Storage pf patients records among other things
  • Hospital side use cases: OPD management system, Appointment scheduling, Patient queue manager, Digital records, billing and invoicing systems
  • Practo adopted a fleet-on-street model to collect information about doctors, onboard doctors and sell its platform to doctors
  • Practo’s success has been largely founded on private doctors and smaller clinics who adopted Practo for their practice due to the breadth of its offering. Hospitals in India have traditionally been very reluctant to share medical records with third parties. After getting sizeable traction with private doctors and clinics, Practo moved to the hospital side
  • Practo is present in 5 countries with consumer and software business and 10 additional countries with enterprise software business
  • Market potential: In terms of revenue, the digital healthcare market in India was valued at Rs 117 Bn (~$1.5Bn) in 2018, and is estimated to reach Rs 485Bn (~$6.5Bn) by 2024, expanding at a CAGR of ~27% during the 2019–2024 period.

Key stats/ metrics of Practo:

  • In 2019, Practo was the most visited healthcare website in the country — attracting more than 16MM+ visitors every month
  • In 2019, more than 85% of its traffic was purely organic
  • Practo does not charge from the customer, but makes money by offering subscription SaaS to doctors, clinics and hospitals. Like a classic marketplace model, Practo worked on getting supply side (doctors first), then built the customer side search, which further brought more doctors on the platform
  • Plan pricing: Basic plan — Rs999/month per clinic
  • Revenue of Rs182cr in FY18, down from Rs212cr in FY17. The company has yet not filed its FY19 financials and we are in the middle of FY21! Though the losses also went down significantly- from loss of Rs182cr in FY17 to loss of Rs58cr in FY18.

Covid impact:

  • Over the last six months, teleconsultations went up by 10x. About 80% of all telemedicine customers were first-time users, while approximately 50% consultations were from non-metro cities.
  • There are now over 25,000 verified doctors who provide online consultations on Practo. This is indicative of growth of over 1000% in just four months.
  • Medicine and diagnostics business has also seen strong growth — The company is adding new pin codes every day and the target is to go from the current 16,000 pin codes to 25,000 pin codes soon, along with targeting shorter ETAs with every order. This business itself has grown by 2–3x since March.
  • The company plans to grow penetration and its services to beyond the top 50 cities. Hence, tier 2 and 3 cities are the next focus area for the company

So, what went wrong?

  • During 2015, Practo seemed to be doing quite well, had raised 3 successive rounds in Dec’15, Aug-15 and Jan-17, was valued at $600MM and was named by CB Insights among the few Indian startups which can become unicorns. (the list also has Cardekho, Razorpay and Dailyhunt), but now has raised a round at 50% discount — something seems to have gone wrong. Plus the fact that the company has not filed its financials even for FY19 makes me doubt the financial condition of the company?
  • Practo does not charge customers, but makes money from small clinics for a SaaS platform at Rs999/ month. Getting small clinics to pay Rs12,000 per annum is not easy task, hence small clinics would have high churn. The high opex fleet on street model would further deteriorate unit economics

Practo seems to be doing too many things at one time, and all segments have well funded competitors, along with many new players that have raised funding recently due to the tailwind from Covid.

  • Teleconsult: Lybrate, Cure.fit’s arm Care.fit, Healthplix, Onco, Tattvan, Portea, Mfine. M that have scaled up teleconsult during Covid. Practo gets users due to its SEO, and not because of quality of doctors listed. One more concern on just listing doctors reminds me of Justdial, since Practo does not guarantee doctor quality. I came across many Twitter posts calling out Practo for listing quacks.
  • E-Pharmacy: 1mg, Pharmeasy + Medlife, now Reliance JioHealth through Netmeds and Amazon also recently entered e-pharmacy
  • Insurance: PolicyBazaar through DocPrime, 1mg
  • Diagnostics: 1mg, Netmeds, Tattvan all are now offering book online diagnostic test services
  • Many small players in the clinic software segment
  • Practo got into hospitals, health records etc through a series of acquisitions. It acquired 5 companies — 4 in 2015 and 1 in 2016, but as per media these acquisitions didn’t go well. The company also laid off 10% of its workforce in 2017 due to redundancies from acquisitions
  • Doctors have concerns over security of patient data and fear that Practo takes the patient data and sell it in the market. Moreover, Practo salesperson do not undertake proper verification of doctors and are most interested in onboarding the doctors to be listed on the website. There is also the concern of doctors paying more fees to be listed higher (similar to Justdial listings). With regards to use of Practo by hospitals, many hospitals prefer to develop their inhouse software for appointment scheduling, data storage, messaging to patient for appointment updates etc
  • That said, Practo has a strong brand recall and has gained lot of organic traction during Covid due to its brand name and strong SEO. Moreover, Practo has been working with the govt to build the National Health Stack, which will digitise patient data & records and create online platforms for hospital care and doctor consultations. The Health Stack looks interesting, and will work similar to how UPI links our bank account and asks for permission. For additional reading on how the Health Stack would work — https://www.medianama.com/2020/06/223-ispirt-health-stack-consent-manager-demo/ Given how fintech benefitted from launch of UPI, making payments seamless, even players like Practo can benefit from this stack and build on top of this.
  • The current financing round in Aug’20 was led by AIA Hong Kong, the largest public listed pan-Asian life insurance and securities group. AIA announced a partnership with Practo in Aug-20. As a result of this agreement, customers of TATA AIA Life — AIA’s joint venture in India, where it holds a 49% stake — will get preferred access to Practo’s digital healthcare platform. The partnership can prove beneficial to both parties — Tata AIA Life become the exclusive service provider of life insurance solutions Practo’s users and Practo will be able to sell Tata AIA Life’s life insurance solutions to its users. This strategic investment holds upside. AIA has a similar investment and arrangement with WeDoctor, a Practo-equivalent in China, which is said to be on the verge of a $10-billion IPO, so the model does hold promise.
  • WeDoctor also connects doctors and patients and has Tencent as a backer (Practo also has Tencent as an investor). WeDoctor wants to be the Amazon for healthcare, similar vision statement as Practo

I believe Practo definitely has the capability to bounce back, but it hasn’t had a great historical performance. It might have the first mover disadvantage, along with trying to do too many things, and also witnessing competition from Jio, Amazon, and other players in the different segments it operates in.

Global tested models to learn from:

  • Teledoc is a listed comparable in US, provides similar services as Practo — virtual consultation, telehealth, serves health employers, health plans, hospitals, health systems, and insurance and financial services companies across its different brands (https://teladochealth.com/about/)
  • The stock price has gained 163% YTD, gaining traction during Covid. The company has a market cap of $17billion high gross margin of 63%, and almost EBITDA breakeven. The company trades at rich valuations of 24.4x LTM Revenue (as of 25 Sept’20)

Given the success of companies such as WeDoctor and Teledoc, we will definitely see a few winners in each segment, and Practo could be one of them if it is able to find/ build a moat in any of the segments it is operating in and leverages the brand recall it still holds

Sources:

https://www.practo.com/

https://www.livemint.com/companies/people/users-on-practo-s-platform-rose-to-17-5-crore-led-by-covid-practo-ceo-11600364608108.html

https://ajuniorvc.com/practo-heathcare-healthtech-startup-medical-provider-doctor/

https://the-ken.com/story/practo-and-the-perils-of-plenty/

https://www.livemint.com/Companies/PcyAlTDfU7BNMOZ24FhS7H/Practo-Technologies-cuts-10-of-workforce-explores-new-reve.html

http://www.cosmoderma.healios.co.in/how-practo-is-ruining-your-health/

Please note that these views are personal and do not reflect the views of my employer. All data is taken from public sources.

Private Equity Investor | Previously Public Market investing at Premji Invest | SRCC