US Stock IPO Outlook | Why does Shiliu Cloud Medical, with the sixth highest number of contracted doctors in the industry, enjoy a high valuation premium?

Three years later, Shiliu Cloud Medical's path to listing in the United States finally welcomed new progress in 2025.

As early as September 30, 2021, the online medical platform Shiliu Cloud Medical submitted a confidential prospectus to the SEC, planning to go public on NASDAQ. However, due to changes in cross-border audit regulations between China and the United States and the incomplete filing process with the China Securities Regulatory Commission, the listing process was once stalled, until it officially received filing approval in January 2025.

Two months later, on March 13, Shiliu Cloud Medical submitted its public prospectus to the SEC for the first time and updated the prospectus for the third time on July 15, accelerating the company's listing pace.

Shiliu Cloud Medical plans to issue 5 million American Depositary Shares (ADS) at a price range of $4 to $6 in this IPO, raising $25 million. Based on the midpoint of the proposed price range, Shiliu Cloud Medical's market value will reach $592 million.

According to data from Frost & Sullivan, if calculated based on the number of contracted doctors in 2022, which is 212,000, Shiliu Cloud Medical ranks sixth among internet hospitals in China. However, from a performance perspective, Shiliu Cloud Medical has yet to achieve profitability, recording a net loss of 37.365 million yuan in 2024.

Two Major Businesses Drive Revenue Growth, Pharmaceutical Supply Chain Revenue Accounts for Over 70%

In recent years, China's internet hospital industry has experienced explosive growth. As early as 2018, the introduction of the "Internet Diagnosis and Treatment Management Measures" was a policy-level "breakthrough," coupled with the subsequent pandemic that catalyzed a surge in online consultation demand, the internet hospital industry entered a "fast track" of development. Since 2021, due to the integration of medical insurance (covering 29 provinces) and technological upgrades (AI + 5G), the internet hospital industry has seen accelerated growth, with the number of internet hospitals increasing from less than 100 to 3,340 by 2024, providing over 100 million internet diagnosis and treatment services annually.

From an industrial structure perspective, internet hospitals can be divided into three categories based on the relationship between physical medical institutions and online platforms, including physical expansion type, platform aggregation type, and vertical specialization type. Notably, the physical expansion type holds a dominant position, with physical hospitals accounting for 83.5% of the total number of internet hospitals. Typical representatives of platform aggregation type enterprises include JD Health and Alibaba Health; while vertical specialization type includes companies like Haodaifu and Mama Hao, which focus on specific fields, with Shiliu Cloud Medical focusing on chronic disease treatment as a vertical specialization type enterprise.

According to the prospectus, since the launch of the company's mobile platform in 2015, Shiliu Cloud Medical has continuously focused on chronic disease management and pharmaceutical services, building a one-stop medical service platform that organically connects patients, doctors, and pharmaceutical products.

In terms of doctors, as of December 31, 2024, Shiliu Cloud Medical has stabilized its cumulative contracted doctors at over 212,800, with platform doctors covering all provincial administrative regions in China, spanning approximately 56 departments. The number of doctors issuing prescriptions in 2024 reached 85,700, higher than 84,800 in 2023. The retention rate of mature doctors in 2024 reached as high as 99.4% At the patient level, in 2024, the platform facilitated over 263,000 consultations, with doctors issuing over 162,000 prescriptions. The number of trading patients increased from 654,800 on December 31, 2023, to 699,300 on December 31, 2024, with a 90-day patient repurchase rate (reflecting the usage cycle of prescription drugs) of 66.2% in 2024. In the field of liver disease, Pomegranate Cloud Medical achieved a higher patient repurchase rate, reaching 72.7% in 2023 and 73.9% in 2024. Additionally, the platform's revenue per user in 2024 was 766 yuan, higher than 714 yuan in 2023.

In terms of pharmaceuticals, Pomegranate Cloud Medical has established a full range of drug inventory after years of operation, combined with a stable supplier network, to meet the basic prescription needs of chronic disease patients nationwide. In 2024, Pomegranate Cloud Medical's warehouse SKUs totaled 42,493, of which prescription drug SKUs accounted for 13,267. As of December 31, 2024, Pomegranate Cloud Medical operated 3 self-owned pharmacies and 18 third-party cooperative pharmacies, covering 7 first- and second-tier cities in China.

From the revenue structure perspective, Pomegranate Cloud Medical consists mainly of two parts: the internet hospital revenue, which includes online consultations, prescription renewal services, and online pharmacy sales revenue, and the pharmaceutical supply chain revenue, which includes retail and wholesale revenue from pharmacies. Notably, pharmaceutical supply chain revenue accounted for the majority of Pomegranate Cloud Medical's income, reaching 74% in 2024, while internet hospital revenue accounted for 26%.

The revenue growth of Pomegranate Cloud Medical in 2024 increased by 12.37% to 343 million yuan, primarily due to the strong performance of both business segments. Specifically, internet hospital business revenue rose by 25.4% to 89.04 million yuan, mainly due to the increase in revenue per user from 714 yuan in 2023 to 766 yuan and the growth in patient numbers. Pharmaceutical supply chain revenue grew by 8.4% to 254 million yuan.

It is worth noting that although Pomegranate Cloud Medical achieved revenue growth in 2024 and improved its gross margin from 12.7% in 2023 to 13.9%, the net loss of Pomegranate Hospital slightly increased to 37.365 million yuan in 2024. This was mainly due to a 29% increase in sales and marketing expenses during the reporting period, which affected the improvement of net profit margin.

The key reason for Pomegranate Hospital's continued loss is the relatively low gross margin of the pharmaceutical supply chain business, which accounts for a high proportion of revenue. Data shows that in mid-2023, the gross margin of Pomegranate Cloud Medical's pharmaceutical supply chain business was only 1.4%, rising to 3.8% in 2024. Whether this business can continue to improve its gross margin will be one of the critical factors affecting Pomegranate Cloud Medical's profitability.

The Digital Chronic Disease Management Market Continues to Grow, Bringing Industry Opportunities

In the long term, Shiliuyun Medical will continue to benefit from the sustained growth of the industry. Compared to developed countries, the prevention and control of non-communicable diseases (referring to diseases that are not directly transmitted from person to person, mainly chronic diseases) in China is still in the early stages. Influenced by factors such as an aging population, the group of non-communicable disease patients in China is continuously expanding, which drives the expansion of the related medical market (measured by direct medical consumption costs). According to Frost & Sullivan, the scale of the medical market has grown from approximately RMB 2.83 trillion in 2016 to RMB 6.24 trillion in 2022, corresponding to a compound annual growth rate of about 10.6% during the period. It is expected that by 2027, the market scale will reach RMB 10.32 trillion.

The growth rate of the digital chronic disease management market is significantly faster than that of the overall medical market. Frost & Sullivan stated that the rapid development of mobile internet, the expansion of the chronic disease patient population, and the emergence of the COVID-19 pandemic have jointly driven the rapid development of the internet CDM (Chronic Disease Management) industry. From 2018 to 2022, the annual compound growth rate of China's digital chronic disease management market reached 44.6%, and it is expected that the compound growth rate from 2022 to 2027 will reach 23.7%, with the market scale reaching RMB 778.6 billion by 2027, indicating that the compound growth rate of this market will still be as high as 18.32% from 2025 to 2027.

Shiliuyun Medical, which has already achieved a certain scale in the market, will continue to benefit from the development of the digital chronic disease management market. According to Frost & Sullivan data, based on the number of contracted doctors, Shiliuyun Medical ranks sixth among participants in China's internet hospital market, with the number of contracted doctors reaching 212,000 in 2022.

However, at the same time, Shiliuyun Medical also faces numerous challenges. The first is intense market competition. Due to the significant advantages of giants like Alibaba Health in terms of traffic and supply chain, they can quickly replicate their models, thus Shiliuyun Medical faces a dimensionality reduction attack from these giants. Moreover, Shiliuyun Medical still has a significant gap in the number of contracted doctors compared to Yilian and Miaoshou Doctors. Yilian has formed a long-term binding between doctors and patients through specialized tools and full-course management, and supports mid- to long-tail doctors in replication through SaaS tools and specialized templates, resulting in a significantly higher number of contracted doctors for Yilian. This actually reflects the gap between Shiliuyun Medical and Yilian in terms of technology and model innovation.

The second challenge is that Shiliuyun Medical's profit model has not yet been established, and continuous losses are detrimental to the company's long-term development. Shiliuyun Medical's revenue structure is somewhat imbalanced, with low-margin pharmaceutical supply chain business accounting for a large portion of revenue. While this can expand revenue scale in the short term, the difficulty of improving profitability is relatively high, and the lack of profitability is also due to the costs of supporting doctors and the fixed expenses of logistics and warehousing This will continuously consume the company's cash flow.

Thirdly, Shiliu Cloud Medical has high liabilities and is insolvent. According to the prospectus, as of December 31, 2024, Shiliu Cloud Medical's total liabilities amount to 546 million RMB, while total assets are only 46.2276 million RMB, with total assets far below total liabilities. Among the total liabilities of 546 million RMB, long-term loans from related parties account for nearly 357 million RMB. It can be seen that due to long-term continuous losses, Shiliu Cloud Medical has formed high liabilities to related parties relying on continuous financial support from them.

It is worth noting that if Shiliu Cloud Medical successfully issues 5 million American Depositary Shares (ADS) on NASDAQ at a price of 4 to 6 USD, then based on the midpoint of the proposed price range, Shiliu Cloud Medical's market value will reach 592 million USD, which corresponds to a PS valuation of over 10 times its 2024 revenue (343 million RMB), higher than the current PS valuation levels of its listed peers