3 Keys for athenahealth, Inc. to Regain Its Sizzle

For investors accustomed to their stock's price tripling over a five-year period, athenahealth's  performance in 2014 has been quite disappointing. The online healthcare services company's shares are down for the year and have dropped 16% since the beginning of September. Athenahealth announces its third-quarter financial results on Friday. Here are three key areas to watch to determine if the former high-flyer can regain its sizzle.

Source: athenahealth 

1. Encouragement from Epocrates
Athenahealth bought mobile health application developer Epocrates in January 2013 for $293 million. The benefits thus far from the acquisition are mixed.

Revenue for Epocrates-branded services fell 23% year over year in the second quarter. On the positive side, athenahealth continues to gain plenty of leads from Epocrates users for its core physician services products. Winning access to the Epocrates customer base was an important reason for athenahealth's purchase of the smaller company.

Athenahealth CEO Jonathan Bush thinks that product improvements will turn the corner for Epocrates soon. We might know if he's right in a few days. Improvement in Epocrates-related sales in the third quarter could provide an important signal that the acquisition is really beginning to make a positive tangible difference. 

2. Help from headcount
Last quarter, athenahealth's revenue jumped an impressive 27% compared to the same quarter in the previous year. However, expenses increased nearly as much -- up over 24%. A significant addition to headcount was the big factor in higher expenses.

The company recently announced major expansions in Atlanta and San Francisco, with plans to create over 1,000 jobs by 2017. That's a significant number considering that athenahealth currently employs around 3,300 staff. What's driving this spike in headcount? The company is readying for an anticipated surge in growth of its client base.

Third-quarter employee-related costs could be higher, because athenahealth was behind in hiring new staff in the second quarter. Timing is key on this front. Higher costs incurred before the expected customer growth kicks in could translate to an earnings disappointment.

3. Confidence from customers
An important key non-financial metric for athenahealth is its customer satisfaction score. In the first quarter of 2014, the company reported customer satisfaction of 92%, with a net promoter score of 44.7. Both numbers dropped in the second quarter, though, to 86% and 41.2, respectively.

Jonathan Bush attributed the lower scores to problems with some software releases that went out to customers. Ongoing quality problems could undermine customer confidence. If the problems are not resolved, declining satisfaction scores can be a predictor of future sales misses as other potential customers learn about the issues. 

However, Bush said in July that the way releases are handled has been changed to minimize the types of issues that occurred. It could be that there's no reason for concern. Watch for any changes in customer satisfaction. Higher scores probably mean that the software problems were only temporary. Further declines would be worrisome.

Expectations game
Wall Street expects athenahealth to report earnings of $0.27 per share on Friday. Over the past four quarters, the company hasn't been terribly consistent -- beating expectations twice but also missing twice. Analysts expect revenue to be around $190 million. 

This stock has sizzled in the past because of its tremendous revenue and the promise of even higher growth in the days ahead. Will athenahealth regain that sizzle? We'll potentially find out later this week.

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The article 3 Keys for athenahealth, Inc. to Regain Its Sizzle originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Athenahealth. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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