Could a small health insurer be similar to a spaceflight company? Social Capital CEO founder Chamath Palihapitiya thinks so. In this Motley Fool Live video recorded on Nov. 16, 2020, Bill Mann, director of small cap research with The Motley Fool, talks with Palihapitiya about why he thinks Clover Health (NASDAQ:CLOV) is like Virgin Galactic (NYSE:SPCE).
Bill Mann: Yet the market on the day that you announced the Clover Health deal took IPOC’s price down to, I guess there assuming at least you won’t lose any money. What is it about this big problem that you think that the market is missing?
Chamath Palihapitiya: Well, the good analogy is Virgin in many ways. Virgin’s product market fit was also not well understood in the initial phases and they traded down post-close to I think like eight bucks or seven.
Bill Mann: Yeah, space flights for rich people didn’t grab people.
Chamath Palihapitiya: I think we live in a world that the media cycle, when I went on CNBC and said, “Download app by house.” It fit in the box of what people wanted to hear. People were able to really embrace that.
When people initially heard space flights, and point-to-point travel, and hybrid rocket engines, they were like, “What are you talking about?” Instead what they did was they superimposed space flights for rich people. But over time, as people took the time to understand the business, hear from Vivek and Andrew and myself, just like they heard from George Bitesize at the time and myself, they got the ground truth, and they understood what I saw.
Product market fit, was the beginnings of scale, and an economic model that I thought was really exceptional, and they were willing to take that path. Similarly, I think what they’re showing here is that we priced the deal very fairly. Neither too hot nor too cold using the Goldilocks analogy. I think it was right down the middle, and we’re trading right down the middle.
There’s nothing wrong with that. Vivek got a good fair price, and I think that what you’ll see over time, is that we got a very fair price as well. Again, there’s so much embedded optionality in this business. The market is massive, and it’s growing. The incentives are massive, and they are growing.
These guys are really the only one that has found to use your language a sin, and that sin is creating a very obvious innovator’s dilemma. It’s going to be impossible for united and wellspring incenting to decide, to reorient an entire economic model for lower costs and better outcomes because they are compensated on higher costs and healthcare inflation. Not because they can’t do it.
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