eHealth (EHTH)

Online health insurance comparison site eHealth (NASDAQ:EHTH) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 21.7% year on year to $113.1 million. The company expects the full year’s revenue to be around $530 million, close to analysts’ estimates. Its GAAP loss of $0.33 per share was 56.6% above analysts’ consensus estimates.

Company Overview

Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ:EHTH) guides consumers through health insurance enrollment and related topics.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Competitors either offering insurance products or digital healthcare management platforms include SelectQuote (NYSE:SLQT), HealthEquity (NASDAQ:HQY), and GoHealth (NASDAQ:GOCO).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, eHealth’s 2.8% annualized revenue growth over the last three years was sluggish. This fell short of our benchmarks and is a poor baseline for our analysis.

This quarter, eHealth reported robust year-on-year revenue growth of 21.7%, and its $113.1 million of revenue topped Wall Street estimates by 13.4%.

Looking ahead, sell-side analysts expect revenue to decline by 2.3% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will see some demand headwinds.

User Growth

As an online marketplace, eHealth generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

eHealth struggled with new customer acquisition over the last two years as its estimated membership have declined by 1.8% annually to 1.16 million in the latest quarter. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If eHealth wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

In Q1, eHealth’s estimated membership once again decreased by 21,363, a 1.8% drop since last year. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and eHealth’s take rate, or "cut", on each order.

eHealth’s ARPU growth has been exceptional over the last two years, averaging 23.9%. Although its estimated membership shrank during this time, the company’s ability to successfully increase monetization demonstrates its platform’s value for existing users.

This quarter, eHealth’s ARPU clocked in at $97.63. It grew by 23.9% year on year, faster than its estimated membership.

Consumer internet businesses like eHealth grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

It’s relatively expensive for eHealth to acquire new users as the company has spent 50.4% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that eHealth operates in a competitive market and must continue investing to maintain an acceptable growth trajectory.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

eHealth has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer internet sector, boasting an average EBITDA margin of 10.6%.

Analyzing the trend in its profitability, eHealth’s EBITDA margin rose by 27.8 percentage points over the last few years, as its sales growth gave it operating leverage.

This quarter, eHealth generated an EBITDA profit margin of 11.1%, up 12.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

eHealth’s full-year EPS flipped from negative to positive over the last three years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, eHealth reported EPS at negative $0.33, up from negative $0.59 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects eHealth to perform poorly. Analysts forecast its full-year EPS of $0.46 will invert to negative negative $0.75.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

While eHealth posted positive free cash flow this quarter, the broader story hasn’t been so clean. eHealth’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 3.3%. This means it lit $3.28 of cash on fire for every $100 in revenue. This is a stark contrast from its EBITDA margin, and its investments (i.e., stocking inventory, building new facilities) are the primary culprit.

Taking a step back, an encouraging sign is that eHealth’s margin expanded by 30.3 percentage points over the last few years. Despite its improvement and recent free cash flow generation, we’d like to see more quarters of positive cash flow before recommending the stock.

eHealth’s free cash flow clocked in at $73.7 million in Q1, equivalent to a 65.1% margin. The company’s cash profitability regressed as it was 8.3 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

eHealth is a well-capitalized company with $155.6 million of cash and $68.77 million of debt on its balance sheet. This $86.82 million net cash position is 62% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly eHealth blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance topped Wall Street's estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 15.5% to $5.40 immediately following the results.

Updated: June 14, 2025 at 10:31 PM EDT

Before making an investment decision, investors should account for eHealth’s business fundamentals and valuation in addition to what happened in the latest quarter.

eHealth’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was weak over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its users have declined. On top of that, its cash burn raises the question of whether it can sustainably maintain growth.

eHealth’s EV/EBITDA ratio based on the next 12 months is 2.7x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $10 on the company (compared to the current share price of $4.17).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.