We estimate that – prior to any tail revenue adjustment – it takes EHTH nine years to fully collect each dollar of Medicare Advantage revenue it books. With tail revenue adjustments, EHTH’s collection period seemingly extends to 20 years. EHTH’s future cash flows are therefore highly speculative.
Our first report detailed our view that EHTH’s revenue recognition practices are unduly aggressive, particularly because the model is based on stickier cohorts that came through higher quality channels than EHTH’s 2018 and 2019 cohorts. Seemingly lost in the mix by investors is the mismatch between EHTH revenues and cash collection. EHTH’s highly aggressive revenue recognition practices mask that its growth-at-all-costs strategy has transformed it from a marginally profitable business into one that is destroying significant value while incinerating cash.
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