TIVP057: Doximity (DOCS): A Profitable Social Media Platform For Doctors w/ Shawn O’Malley & Daniel Mahncke

25:50And so with Doximity, the value is that physicians know all of Doximity's tools are HIPAA compliant, meaning that they don't have to worry about violating patient privacy laws, which can be really strict in the US. And beyond what we've already talked about, there are these kind of DocuSign and Adobe Acrobat-like features, including being able to e-sign patient documents and then e-fax them on Doximity. And I've spoken with a handful of doctors. As we alluded to earlier, you would not believe the amount of paperwork used behind the scenes in healthcare in 2026. Healthcare workflows are among the least digitized of any industry in the country.

26:32And there's just a lot of physical printing out of paperwork and faxing that still goes on every day. And then doctor's favorite tool seems to be this tool called dialer. Dialer lets physicians place calls or run telehealth visits while controlling what caller ID patients see, meaning your doctor could call you on the way home while the caller ID shows up as the clinic's number, protecting the doctor's privacy so patients can't just text or call the doctor's personal number whenever. And also, if the call is coming through as the clinic's number, then the patient is much more likely to recognize the number and pick it up rather than pick up some random star 67 call from a doctor who's sitting in traffic commuting home, trying to reach them with an update, but using star 67 to hide their identity.

27:23So being able to sign documents, fax them, and make office calls, all using one's personal phone while on the run in ways that are all compliant with the stringent set of privacy laws that regulate what doctors can and can't do, that's extremely useful. And in theory, that keeps people coming back and engaging with Doximity's platform on a recurring basis. And then thus, that makes it more likely for them to engage with the newsfeed and kind of social media side of the app, where Doximity can much better profit from their attention. And so for context, targeted advertising draws 85 % of the company's revenues, while about 15 % of revenues come from these enterprise level subscriptions paid by clinics so that all of their physicians can have access to tools like Dialer and integrate it into their workflows and that sort of thing.

28:12And so I think the core thesis is pretty straightforward then. As more clinicians join and adopt tools like Dialer and eFax, the platform becomes more valuable, engagement increases, and then monetization improves first through ads and then over time through deeper enterprise and telehealth products, which for now are a relatively small slice of revenue. And while Doximity does offer a paid version of its telehealth tool for individual practitioners to use called Dialer Pro, the platform remains free for really the vast majority of users on it, which is why you have something like 80 % of doctors apparently having accounts on it, even if many of them probably haven't opened that account in years.

28:52And if you look up Doximity on the App Store, you can get a good idea of the app's positioning. On the Apple App Store alone, Doximity has 188 ,000 reviews with an average rating of 4.8 out of 5. So clearly that lines up with the company's claim that the platform is widely used and widely liked. Gosh, I mean, Doximity is such an interesting business. I wasn't aware that you would post something or pitch something, basically, which is that interesting and yet so unknown. I mean, I think there's LinkedIn as a peer comp, but also you have Zoom and you have DocuSign and you have Google too. I mean, in terms of having a productivity suite of apps, any one creator could create a better version of, let's say, a calendar app than Google has, for example.

29:34But the value is that Google Calendar is integrated with everything else from your Gmail account to Google Drive. And it sounds like Doximity is pretty much like that as well. Obviously, it would be nice to get even more insight from doctors who use it on a daily. But I don't know. I mean, they don't necessarily have to have the best standalone apps for any given purpose, because just the synchronization of the whole ecosystem is probably what's most valuable. So looking for each one of these features and thinking, is this actually as valuable as a standalone? It's probably not even the right way to look at it.

30:06I mean, each app just needs to be good enough. Basically what you said about Adobe. And then I think I also heard that there's a generative AI component here, which basically means we could also add SharedGPT as a com too. Well, I forgot to mention it, but yeah, they have something called DocsGPT. So they're really playing on that chat GPT comparison with the name. And again, it's probably not the best LLM ever, but it is useful because it works in a HIPAA compliant manner and then is integrated into your real workflow as a doctor. It's an overlay on top of dialer and e-faxing. And so DocsGPT helps with this major pain point for doctors and getting documentation, patient-facing materials and letters out the door fast with the ability to use AI to help find evidence references to and just in making decisions about patient care.

30:58And so DocsGBT can also be a great AI writing assistant. Again, providing HIPAA-compliant generative AI writing services that helps physicians and other medical professionals reclaim maybe the time they spend on administrative writing tasks like drafting insurance appeals, putting together patient education materials, letters of recommendation, or even things like grant applications. These are things that you can't really trust to regular chat GBT, not to say that some doctors haven't done that, but it's because it's not guaranteed to be in compliance with HIPAA regulations, despite the fact that these services can be a huge time saver if you can have a lot of these kind of generic language-driven templates automatically created.

31:42And so in May 2025, Doximity acquired a company called Pathways to build on this offering. Pathways, for context, has an AI model that has achieved a record score of 96 % on the US medical licensing exam. So it's very, very good. And they made this acquisition so that Pathways medical data set and AI models could be layered into DocsGPT, providing physicians with the ability to use natural language prompts to ask drug-related questions about dosing, side effects, interactions, and that sort of thing, and then to be able to receive peer-reviewed answers instantly. And correspondingly, in conjunction with this partnership they have with Research Solutions, the integration allows doctors to access full-text PDFs of over 2 ,000 medical journals directly from citations just provided by the AI, which removes massive barriers like paywalls and library logins, which is apparently a very sensitive topic for doctors.

32:43There can be a lot of these logins that they have to remember just to access the information that they feel they need to for their patients. And so a lot of these medical journals and a lot of logins to keep track of, but now all of that is in a way baked into Docs GPT. So I think that is something to be really excited about. The promises of AI are also new that we don't really normally like to make this the basis of a long-term investing thesis because it's just it's everything so dynamic right now in that space but i think it at a minimum is a really compelling illustration of how doximity is rounding out its product suite to make it increasingly essential to doctors workflows i still have a couple of friends who are in med school and honestly the stories they tell me about using chat gpt are kind of scary so i think even as a patient i'm happy if there are actual GPTs that are only for medicine.

33:38I've heard though that there is one called Open Evidence. And I do think that most people, at least the people that I know, use Open Evidence in terms of just looking something up instead of ChairGPT or also DocsGPT. Although technically it's also not available in Germany. So maybe that's the reason. But maybe you can give some more insight on how they compete if they are about equal in size, how it looks on that end. So Open Evidence is almost like a dedicated workstation. that you open specifically to answer dense clinical questions or pull guidelines back by research from top medical journals.

34:11And before it came out, you might have had doctors using ChetGBT, as you were saying, almost as a medical assistant, helping look into things on your behalf or doing certain tasks for you. Whereas open evidence is really just the most trusted source for getting an answer to a complex question where you know implicitly the response that's being generated is based only off of licensed and respectable data sources, which is not something you can know as easily with chat GBT. And so I think the Pathways acquisition was a big step for Doximity and trying to make Docs GBT into more of a true rival with open evidence, where doctors can not only use it to help with paperwork, but to be an aid in actually answering medical questions too.

34:55But open evidence is really, really good on that front. As someone outside of the medical field, it's hard for me to say which one's better positioned. But my impression from the conversations that I've had is that open evidence is just the gold standard for doctors in getting trusted answers from LLMs to medical questions, where docs, GPT's advantage is in being able to do that decently well too, but also in being able to integrate with dialer and eFacts, being able to draft HIPAA-compliant paperwork, that sort of stuff. And so actually, according to open evidence itself, in a lawsuit against Doximity, so there is some drama here behind the scenes, they claim to have 12 times the engagement among physicians as Doximity.

35:39So just going off that, that clearly suggests open evidence is pretty firmly the market leader here. But one other advantage that DoxGPT has is that there's no risk that AI could hallucinate as you're writing your prescription. If you type in the name of a drug, it has this predictive reasoning that immediately populates a pulldown list with your drug. And if you click on one of them, you'll see a response that is drawn from this database of over 3 ,200 drugs with info on dosing, interactions, and side effects. So you can imagine that's really, really valuable and useful. And I think the main risk with AI for Doximity, other than just trying to catch up to open evidence in terms of engagement amongst positions is that superior tools for things like eFacts and medical news aggregation could pull workflow away from Doximity, similar to how there's some concern that ChatGPT queries will pull from Google search.

36:36But as we've talked about, the opportunity is that by embedding clinical reference and AI scribing into the platform, time spent on Doximity should materially increase, creating more advertising opportunities while also directly improving doctors' quality of life by reducing time spent on after-hours documentation and patient research. I mean, it's obviously hard for the two of us to judge how much of a value-add Doximity actually is, but judged by what you tell me today and just the numbers, honestly, it looks like it does add tons of value to doctors. And if that's the case, DocsGPT might only be good enough to do the job as part of basically the bigger ecosystem.

37:18And that's something we see with products of other ecosystem companies as well. You mentioned Adobe before, we made a similar argument for their AI tools. And we've got an already viable business that's growing and profitable, which for a company of that size is not necessarily a given with network effects and also some pretty serious compliance advantages. And they're just creating a pretty compelling AI tool and database. And another, perhaps even better example than Adobe would be Alphabet. I'm not exactly sure how Gemini's model stacks up to JGPD at any moment in time. I think it changes basically every week.

37:51But when we think about Alphabet, I think it can be a winner, even if they did have a modestly inferior model, because just of the value in controlling the distribution of all the other essential parts of our lives that I can be baked into. I mean, JGPD is great. It's still the LLM that I use most. But if Gemini can just natively reference your calendar, your email and Google Drive, which is what we use basically on a daily basis, or be injected directly into those apps to just make them more efficient. I think then that's a pretty meaningful advantage. I mean, OpenAI is trying to also create a platform around ChatGPT as quickly as possible, obviously, while they have the momentum.

38:28But I think it's easy to just forget how many different Google apps we use every single day from search to YouTube to photos. And that ecosystem is just so difficult to disrupt. I think that's what we talked about the entire year in 2025. And back then, it was a take where most people would say, well, JGPD has actually such huge tailwinds nowadays when we say this, probably most people would agree. And that's also where the stock chart is where it is. I personally see Doximity as maybe having some of those alphabet-like characteristics. Obviously, nothing on the same magnitude as Alphabet, but maybe similar in having a suit of just productivity apps and the network effect that might give you just enough reason to keep coming back to DoxGPT, rather than just going externally to open evidence.

39:14For sure. And just as some food for thought here, with Doximity being a sub$10 billion market cap, DoxGPT is one of those things that gets me excited about plausibly imagining a much, much bigger, more valuable version of this company on top of, like you said, the underlying business not really being dependent on winning some LLM race and then actually just being very solid in its own right. So that is a sort of optionality that we're talking about here that I think could be potentially very valuable. For the core business, though, how big do we think the addressable market is here? I mean, what's going to drive the incremental growth going forward in the business?

39:52Besides hoping that, for example, DocsGDP just becomes the go-to AI tool for physicians. I mean, just looking at the numbers of doctors that already use the app, or at least have signed up for it, it might seem like user growth alone will not be a major lever. So is it about showing more ads, which also seems unlikely because you have this subscription model, or what exactly are the plans to just make the business grow? By the company's own estimates, its addressable market is about$18.5 billion, which is the total of how much money is spent annually on pharmaceutical marketing, healthcare system marketing, and staffing services, and then also on telehealth tools too.

40:31With Doximity then generating about$600 million a year in revenue, they have captured a chunk of that pie of annual spending. But even with a doubling of their revenues, they would only be capturing around 5 % of their addressable market. And so I don't really love relying on addressable market projections because they're just so subjective. And of course, the company wants you to believe they have a huge opportunity ahead. So I think the more interesting angle for me is to think about how much more deeply they could penetrate pharma spending in particular, since I can pretty tangibly understand the value add there that we were talking about earlier.

41:08And so on that front, according to the company's disclosures, they've signed agreements with 52 % of all US pharma mega brands that are companies that do more than$100 million annually in sales. So when you look at it through that lens, their market actually sounds very saturated. But if you peel back the onion a little bit further, they've only signed deals with 11 % of smaller pharma companies that do less than$100 million in annual sales. And so if you're looking on screen right now, it's the third pie chart we're showing that's most significant. What it shows is that for each pharma brand with more than$1 million in US sales, they estimate that brand's marketing budget for reaching healthcare professionals, and then they estimate Doximity's share of that total spending.

41:52And for 69 % of these brands, Doximity generates zero revenue from them. And then for 12 % of these potential pharma sponsors, Doximity represents less than 5 % of their overall marketing budget. While for another 12%, Doximity captures between 5 % and 20 % of their marketing budget. So only 7 % of pharma brands spend more than 20 % of their budgets with ads on Doximity. though there's a lot of numbers there to say that i think there is definitely an opportunity to sign more brands but really the business could grow tremendously by just capturing a larger share of wallet from some of these existing brand partners that they have you know if you can get a company to go from spending two percent of their marketing budget to four percent of their marketing budget on doximity those are really material gains for them and most brands are not spending with doximity at all, or like I said, are only allocating a small share of their budget to them.

42:50So that's the opportunity. And for context, the overall pharma marketing industry does tend to grow faster than GDP at mid single digit rates annually. But the more powerful tailwind for Doximity is the mix shift from traditional channels like print, banner ads, TV ads towards digital formats, where attribution is clear. It's a lot like the thesis for Roku that we discussed months ago. And so obviously Doximity is a big beneficiary of that trend, but also other digital advertising ecosystems will almost certainly benefit too from this digitalization of pharma marketing. And COVID did accelerate that shift by keeping pharma reps out of clinics and forcing more digital adoption.

43:36And then just in that post-COVID era, that has led to there being more no-see doctors as people refer to them, meaning that these are doctors that are just not really receptive at all to having in-person sales rep marketing for drugs in their hospitals or clinics. Okay, so I got to admit, we talked a bit about the company before recording today. And most of the things that you said sounded like there were at least some doubts about maybe some numbers or just general things about the company. But until now, I really only see a pretty good market opportunity, strong proof of concept, and a phenomenally long runway for this company.

44:13So maybe let's stick a bit into the bear case or maybe just the risks with this company, what do you think are the biggest ones here with Doximity? Is it more about the business model or is it about the people involved? I found myself getting really excited about Doximity, but then I had this nagging feeling that just something wasn't totally adding up and I just couldn't let that feeling go. And so for me, the biggest yellow flag that I've lingered on has been the company's lack of transparency around their engagement metrics, which is objectively pretty unusual for any company with a social networking aspect to their business.

44:51You'd expect there to be much more data on the number of daily active or monthly active unique users who log into the platform, for example. But management just does not really disclose any of that from what I've seen. And on the one hand, having 80 % of physicians registered on your platform sounds really great on paper. But if only a small fraction of them are actually active, that's just a different story entirely, especially when we don't really have a good feel for what percentage or how big that fraction of that 80 % is actually using it frequently. And so it's just weird because I've gotten some anecdotal insights, but this is just data I would expect the investor relations team to make available.

45:31And the fact that they don't makes me dubious. And even more troubling is that this question is actually under fire in federal courts right now. Since April 2024, the company and several of its officers have been named as defendants in a securities class action lawsuit centered around questions about user count and engagement rates. And that legal pressure, unfortunately, is compounded by multiple derivative shareholder lawsuits asserting these similar claims of gross mismanagement and breach of fiduciary duties. And so investors allege that Doximity and its CEO made materially misleading statements about active physician members and engagement.

46:12And so now they're seeking damages accordingly. And with any company, there's always lawsuits. So it's not immediately a turnoff, but these are, like I said, yellow flags that I really felt like I needed to understand better. And one of the confusing things was that there was a survey done recently that apparently suggests that 50 % of doctors have never actually used Doximity or use it less than quarterly. So that very much contradicts with what Doximity's management tries to imply when they talk about how wide the reach is of their platform. And so even if this was a risk we wanted to dismiss, given that discovery is still underway and trial is scheduled for later this year, that is going to be a big element of uncertainty continuing to hang over the stock.

47:00And that overhang has really clouded sentiment and has probably contributed to why the stock is down nearly 40 % in the last three months at the time of recording. And from a competitor standpoint, I would say what scares me the most are these electronic health record systems like Epic with its MyChart platform, because they're truly mission critical for doctors. And I've actually used MyChart myself for doctor's appointments. And it's basically this virtual ecosystem for patients with all your medical records, notes, upcoming appointments, reminders, options to message your different doctors, and then also a portal for paying your bills in one place and for patient education.

47:38It's got everything you could ever want. It's a really good app. And Epic has a feature called Doximity Dialer Integration in some hospitals where clearly they are collaborating with Doximity, but I do worry, you know, hey, what would happen if Epic just decided to replicate that tool natively and cut Doximity out? My chart does not have the social networking component for doctors that Doximity has, but it is such a great app for communicating with patients that is already deeply ingrained to a lot of medical systems or, you know, too if they leaned into it. And that would be problematic for Doximity's business and the usefulness of their eFax and dialer services.

48:26And so I find that all to be a bit complicating to try to wrap my head around. And on the one hand, the productivity subscriptions are 10 to 15 % of revenue. So it's not the end of the world if Epic were to go and recreate some of the tools that Doximity has built. But if that causes doctor engagement with Doximity's news and networking services to fall off, then that would ultimately be, well, it's very troubling. And so then more generally, Doximity is just very dependent on the overall profitability of the pharmaceutical industry. If there's policy pressure from the federal government that hurts pharmaceutical profitability, then ad budgets would be at risk.

49:06And Doximity would really feel the pain since there is not much diversity in their advertiser base at all. That is sort of the intention, but this is the cost that comes with that. And so we talked about how that concentration can be a good thing, but it does cut both ways. And there's already been some deceleration in their revenue, triggering concerns that the company won't meet its investor day targets that were outlined fairly ambitiously for 2028. And then just recently, we've had the FDA requiring drug ads on TV to have longer disclosures of side effects and risks. And well, not only can that mean having to buy more airtime, but ads tend to be a whole lot less effective when you spend half the time dwelling on everything that could go wrong.

49:48I know I hear those ads and it just makes you never want to touch those drugs with anything. So I actually think that could be good for proximity, if other advertising channels focused on BDC are less attractive, then that should mean more budget gets allocated to B2B channels targeting doctors instead. But again, it just illustrates that the industry is at the whim of regulators, which is something that has always kind of kept us away from the healthcare space. I mean, it still seems like the structural tailwinds are just extremely strong. You know, as someone who took growth hormones for half of his life.

50:27I just know how valuable these ads could be because it literally decides over hundreds of thousands, if not millions of dollars for the doctors and the brands basically. And then you have all these numbers, which would suggest that advertising is actually very efficient, which means, well, I don't know how many people are on Doximity, but if the ads work out for the companies that buy them, they will probably keep doing that. Of course, that will also imply that those numbers are actually trustworthy. And I think that's the biggest problem that we currently see here, especially with the lawsuits, but also with how management handles things.

50:59And since we don't have similar apps in Germany, it's just difficult for me to assess where the biggest value add is coming from and how much of a threat an app like Epic, for example, is for Deximity. I guess where I draw the line is just the misinformation, if that's actually the case by management. I mean, we recently hosted a call in the intrinsic value community about our learnings from diving into, as everybody now knows, one company each week for the entire year and one major learning focused on the management teams. If you want to invest in a company for the long run, you just got to be able to trust the management team at the helm of that company.

51:32And this would certainly be an investment that only really plays out over many, many years. And I'm just not certain I would want to invest alongside the management team that is proactively trying to make numbers look better than they are. Even if all the reported numbers are true, if you kind of make people think 80 % of doctors sign up, but then only 30 % of them actually using it, you do know that you try to portray it in a different light than it actually is. And besides the dishonesty, if you want to call it that way, it also makes you question why management even sees the need to do that.

52:04I mean, is activity significantly lower than overall user numbers would suggest? Because if not, why even cover it up? But maybe let's decide to give them the benefit of a doubt. Yeah, at least for now. What can you tell us about the management comp and the governance? Because that's one of the things that you can look at to see, well, how well are they aligned with shareholders? Do they have the same interest as you and me if we would decide to invest in the company? So first off, as we, I think, seem to see a lot on this show, the company operates with a dual class common stock structure. So there's the class A common stock that's sold to the public and carries only one vote per share.

52:39All there's class B stock for insiders that carries 10 votes per share. And so that has given the executive officers and directors of the company approximately 79 % of the voting power, despite owning a much lower economic stake in the business than that would otherwise represent. And so specifically, CEO Jeff Tangney owns something like 30 % of the company, but controls more than three quarters of the voting power. And Tangney successfully funded and sold a healthcare business previously and has some experience at Goldman Sachs. So he's generally been seen as a pretty competent leader. And I haven't seen anything to make me think otherwise necessarily besides some of the lawsuits.

53:17But in terms of compensation, his base salary was recently doubled to$600 ,000 a year. And the board began offering him a bonus based on these short-term targets for revenue growth and adjusted EBITDA, which I say with a bit of a sigh. And because Doximity beat those goals, Tangney received$1.2 million in bonus comp on top of his base salary. And then longer term, is about$10 million worth of RSUs, so restricted stock units that will vest over the next three years or so with a long-term performance incentive with a target of being worth about$3.6 million, which is really a lot of jargon to say Jeff is well-paid.

53:58And yet, unfortunately, I do not think the comp package is particularly shareholder aligned. I would at best give it like a C, maybe a C minus. And we've talked about before how focusing on the compounding of earnings per share is long-term the most aligned way to benchmark executive performance because having most of the KPI tied to revenue and incentivize growth at all costs, leading to a scenario where the CEO is cashing in on a major payday while the company's profitability and business quality has actually weakened. I'm sure there's no shortage of MBA case studies on that exact phenomenon.

54:38And clearly, the adjusted EBITDA metric is supposed to reduce that risk. But it's such a manipulated calculation that it does not account for the effects of even stock-based compensation, for example. And so that just makes it hard to have any faith in that number. And it also just begs the question to me of, hey, why are they afraid of tying comp to a more universally trusted number like gap earnings that everybody understands what that means rather than having to invent from thin air their own profitability metric that just strips out a bunch of stuff and then makes it therefore easier for them to hit their target in some very arbitrary ways so definitely disappointing to see even if we do like to see the company being founder led which is a plus and probably the only reason i would say that their comp package isn't an f or a d is because the CEO has so much skin in the game.

55:31But it's hard to have that offset a lot of my concerns when the incentive structure is still so poor. And it's just not what I was hoping to find because Tangny does have so much skin in the game. As a shareholder himself, it makes me not want to disqualify Doximity simply because of the executive comp. We've seen this before where executive comp is not structured well, but if you have a really special leader at the top with a lot of skin in the game, they can almost make up for that. So it's not entirely disqualifying on its own, but it is one of the weaker points of the thesis and I think subtracts from the quality of the pitch, for sure.

56:14Well, so we can get to deciding whether to disqualify Doximity or not. How about we go through the valuation to help us think through that decision? I mean, on a PE basis, the stock trade said, what I think about 30 times earnings, per share expected over the next year, so forward earnings basically, and for a business with 40 % net income margins, 60 % returns on invested capital, and basically one that has compounded by nearly 20 % a year for the last couple of years, that valuation doesn't immediately strike me as being unreasonable. But of course, I'm curious to hear what you think about it, especially considering all the factors that have basically pulled down the valuation in the last couple of ones.

56:51So the thing is, the numbers look great. But my biggest challenge has been verifying to what extent the numbers match reality. And I'm not saying they're fraudulent, since these are audited financials after all. But I've had trouble squaring the picture painted by management to investors with reality. And so, for example, management talks about doctors using Doximity for telehealth appointments and not just privacy-protected phone calls and texts. And then yet, every time I've ever had a virtual doctor's appointment, it was done via my electronic health record system. So in my case, Epic's MyChart platform.

57:27And I've moved around in my life and I've been a part of a number of different medical systems. And so it's something I've never seen used before. And I think MyChart is pretty common. So it's not entirely clear to me then, if ever, when real physicians would choose to use Doximity for telehealth outside of their usual patient-facing ecosystem that's purpose designed for that. And so that's problematic because management talks about how they're monetizing lost time by showing doctors ads in the moment they're waiting for a telehealth call. And I'm just wondering, for me, I've never even had a doctor waiting on me for an appointment, right?

58:07I'm always waiting on them. And even so, how valuable could a few seconds of wait time really be, especially when it's unclear how many physicians even use Doximity for telehealth? So that's where, as I was getting into this, I had this kind of accumulating suspicion. I just couldn't totally get comfortable with. And maybe that's just one minor example since telehealth is not the driver of the thesis here, but it is emblematic of a lot of the things that left me scratching my head as I dove deeper into the company. And as you know, Daniel, that's the challenge with these pitches. You can spend 15 hours digging into a company, think the setup is really, really compelling, decide to pitch it as I've done.

58:46And then as you go further, more and more questions pile up. You just can't get a good answer for it. We already talked about the surveys backing up the lawsuits, saying that Doximity has materially overstated the number of physicians who actually use their platform in a meaningful way on any kind of frequent basis. And so the fact that a judge did not dismiss the case outright implies that the evidence is at least somewhat plausible. And so a member of our intrinsic value community who works in health care actually tried to help me get to the bottom of this. And it was fun to go down the rabbit hole with him.

59:17And we tried to determine, oh, hey, how many doctors does he know that use Doximity frequently in, well, across more than a few hospitals? We could not find almost any meaningful users of Doximity. so you know how do you model earnings for a company where you don't have a ton of conviction in the actual numbers being reported even though the numbers look really good and you know i just don't have a lot of faith in this supplementary numbers that underpin estimates of earnings growth you know like how many doctors eyeballs there are to actually monetize on the platform and how much time those doctors actually spend engaging with doximity's different offerings and and if you read through the open evidence suit against doximity obviously this is a company is a competitor that has its own biases.

1:00:01But if even a fraction of that is true, you were talking about some real red flags. I've actually never read anything like it. They make some very detailed allegations claiming that a number of higher ups at Doximity impersonated physician identities and engaged in a scheme to meticulously steal trade secrets about how open evidence's LLM works. And so in a way, if that was just an allegation on its own, I might be willing to chalk that up to, hey, a really ruthless management team that'll win at any cost. You know, as uncomfortable as it is to say that, you have to know Alphabet and Amazon did a lot of pretty ruthless tactics back in the day to get to where they are, with the point being that some amount of a killer instinct for management is good for shareholders, which is kind of an awkward thing to say.

1:00:48But when you put it in the context of these misleading presentations to shareholders, that just makes me a whole lot less comfortable with the allegations against the company. And so anyways, I did try to model things, very conservatively so, with not a ton of conviction in the estimates that I was putting forward. And so this is a company that despite these questions, the market has historically been willing to pay a significant premium for as its earnings per share have compounded over the last few years very consistently. And the problem for the stock is just that rather than paying a premium of 60 to 70 times earnings as the market used to a few years ago, now the trailing price to earnings ratio is closer to 35 times earnings, which as I said, is still a premium to the market averages.

1:01:34So the market has not totally soured on Doximity by any means, but there's just a lot more caution baked in it. For anyone who wants to see the model I made, you will find it in our free weekly intrinsic value newsletter that we send out to complement the podcasts we do here every Sunday. And so there's a link to sign up for that in the show notes for this episode. But yeah, what I ended up doing in the model that I show in the newsletter is I went through a bull base in bear case, where in a base case over the next five years, you're estimating that they can basically just continue to grow revenue at a nearly double digit annual rate while operating leverage continues to kick in, meaning that margins improve as the business scales.

1:02:14Since this is ultimately an asset light business, there's not a ton of CapEx that needs to be reinvested. In the bull case, the assumptions are obviously a little bit more optimistic. And in the same way, in the opposite direction with the bear case, and then across these three different versions of reality that I'm sort of imagining with exit PE assumptions adjusting for each one, I get a fair value for the stock of approximately$33 per share. And then from a margin of safety and implied return perspective, the stock wouldn't even be attractive to us until around maybe$25 per share, which would require more than 40 % drop from where the stock's currently been trading north of$40 per share.

1:02:55And sometimes we say things like that and then people reach out and say, hey, the stock dropped. Are you into it now? And it's not a prediction I make with equal conviction for every company we cover. Even if we did get an attractive price on paper, without getting more clarity on the expected outcomes in the cases against Doximity and understanding the implications from them. There's just these qualitative factors that make it very hard for me to get comfortable owning the company, despite my feeling that the business does have some very powerful tailwinds behind it with a financial profile that very much resembles some of the highest quality companies we've looked at.

1:03:33Honestly, if I think about what would need to happen so that this stock drops another 40%, I'm probably a bit scared of what actually would cause the stock to go down further. And if it's another case of them actually showing numbers that are not really true or anything like that. And this is just the stuff that you want to keep away from, even if the numbers look great. I mean, especially if the numbers look great. And I guess it was your pitch. So I haven't looked into the company even closer as much as you have, which is why I'm going to choose words rather carefully, I would say. But some of this just sounds to me like a Goldman Sachs banker who just knows how to make things look much better than they actually are because he knows that's what Wall Street wants to hear.

1:04:11There's a reason why this stock is traded at 60 to 70 times earnings for a long time. And it also sounds to me like the founder owns a lot of shares, as you said, 30 % of the company, and then kind of tries to make the numbers look better than they actually are to increase the value, first of all, of those shares. And additionally, get some nice bonuses on rather easy targets and metrics to achieve. And fraud might be a bit too much for this company, but it could be one of those situations where the founders really believed in the business and in the model that they have. And at some point just realized they couldn't even come close to delivering on what they have promised to investors, but maybe also Wall Street to some extent.

1:04:48And maybe they just ended up reporting some questionable numbers and statistics that are not actually a lie, but maybe also not what the full truth would basically be. And I could be wrong. And if I am, Doximity will likely be a much bigger business five years from now than it is today and a big winner. I mean, that's kind of the story of investing. Sometimes you just got to trust your gut feeling. And honestly, to me, this sounds so much like a story of 2021. This would be a company that, you know, IPO'd in 2021, has this huge, basically promise to investors, which just sounds great at first.

1:05:21I mean, you just mentioned the example, and I thought about it when you pitched the stock of doctors getting ads while they wait for basically a patient coming in. And I'm thinking to myself, if I would be the doctor and have a stressful day, do I also want to get bombarded with ads while I wait for the patient? I mean, basically, I get the idea that you say, well, these are interesting to you because you're a doctor and it's about your niche. But at some point, you probably just don't want to get more input. And I know that's a very small and subtle thing. but I think it's part of what makes the story so great.

1:05:51You think, well, there's so much potential for showing ads, so much interest from all these companies, but are they actually showing up? Are the activity numbers actually there? Are doctors actually looking at these ads? Is it effective? And to some extent, you could say, well, probably it is. Otherwise, advertisers would not be in the platform anymore. But I'm also thinking to myself, if I don't trust the numbers they report, how can I be actually sure that the way they account for advertising dollars is the same every single year? So if they say actually we grew 110%, does it mean that you changed some accounting numbers?

1:06:23Or does it mean that you actually grew the same metric 110 %? I think for me, it's just a clear example of it goes on the too hard pile. It's a sour note to end our first healthcare pick on. And we'll be the first to admit, we're going through a company every week. And so we're putting a lot of thought and research into these. But this is not a company that I had the chance to interview 100 people about and do 200 hours of research on. So there are definitely gaps in our understanding. And if anybody in the audience has answers that help us better understand or appreciate some of the questions that we've been raising, we would love to hear it.

1:07:01Because personally, I don't have anything against Doximity. I just have this gut feeling and some concerns that I couldn't get answered on my own. But if we can get those answers from folks who do know a lot about the company or work with the company or have used Doximity before, that would be really helpful and would be really interesting and it's something that maybe we would revisit down the road but that's enough for today on Doximity it was one of those that I found myself getting really really excited about and then I just lost that enthusiasm as I couldn't kind of overlook some of the yellow flags that were lingering in the back of my head so with that let's just go on to the next how about you give us your hints for next week's pitch Daniel well next week we are going to talk about a company that is, to some extent, the last man standing in its industry.

1:07:46I think most of its peers have, perhaps surprisingly, seen massive drawdowns in 2025. And the company we are talking about next week stood its ground. And that also means it's everything but cheap. Standing its ground here means you still have to pay a pretty significant premium for this stock. And I'm honestly unsure yet whether I think it will be worth paying that much of a premium or whether the value investor in me won't be able to do it. It's certainly one of the best brands in the business world. And to some extent, I think we covered some competitors. But yeah, I think just got to tune in next week to find out about it.

1:08:20All right. Well, should be a good one. I will close this out with a quote. This one I dug up came from the Roman philosopher Cicero, who says, and nothing do men more nearly approach the gods than in giving health to men. And modern healthcare is a huge and important business. And Doximity has been a great way for us to peek into the industry while not drifting too far outside of our circle of competence. See you all again next week.

1:09:34Thank you. to any third-party products, services, or advertisers do not constitute endorsements, and the Investors Podcast Network is not responsible for any claims made by them. Copyright by the Investors Podcast Network. All rights reserved.

1:10:08Thank you.