Weave: Automating the Front Desk for Medical Offices

Think about the medical offices you've visited, likely within the past year. Your primary care physician. Your dentist. Maybe a chiropractor? Physical therapy? Optometrist?

There are a lot, aren't there?!

Now, think about the systems needed to run even one of these typically small practices. In 2025, you need a system that stores clinical information: patient health records, vital statistics, lab results, medications, allergies, etc. Far from the days of folders and filing cabinets, today an electronic health records, or EHR, system is essential - and federally mandated.

That covers the clinical side, but what about the business side? You're going to need a system that handles appointment scheduling, billing and insurance claims, payroll, and financial management. This is known as a Practice Management System, or "PMS".

Those are certainly the "big 2" system requirements to run a small practice. But today, I want to highlight a 3rd system that can save these practices money and time while also improving patient relationships. A key provider just came onto our Green Screen!

That company is Weave Communications (WEAV). Let's take a look.

The Business of Weave

While the PMS system is key for the business side of a medical practice, it suffers in a few areas. Most PMSs are designed to be used by front-office staff directly. This means that administrative staff have to take calls or texts, manually handling patient communication and scheduling. Billing, as well, is often processed in-house, although larger practices may contract it out.

This is where Weave comes in. The firm offers a software-based system that adds a layer of communication services on top of the PMS. For example, its VOIP phone offering pops up patient info (like next appointment and outstanding balance), and translates customer voice mails. Its text messaging offering can automatically follow up with a patient, send mass notifications, provide secure billing links, confirm appointments, and more - with zero staff time. It offers self-scheduling interfaces for patients.

There are a lot of other features I'm not mentioning, including marketing and review tools. Check out Weave's website for a full list of product offerings.

Right now, Weave is used at over 35,000 locations. The system started off mainly servicing dental and optometry offices, but is expanding into areas like primary care, physical therapy, even "med spas" - and seeing strong results.

Revenue Recurrence and Growth Potential

Weave offers what is known as a "communications platform as a service", or CPaaS. Basically, that means a minimum-setup, cloud-hosted communications infrastructure, done entirely through an internet connection (think Twilio for healthcare). Ongoing access means customers pay a monthly fee, making it subscription-based and highly recurring. In fact, over 92% of Weave's revenue is from recurring sources.

Growth has been strong - if not spectacular - since its late 2021 IPO. The 3-year CAGR is a solid 21%. The firm is expected to grow in the "mid-teens" percentage rates over the next 5 years. Most of that will come from adding new customers, as the focus is on small-to-medium (SMB) practices that are difficult to upsell.

A few weeks ago, the company announced the acquisition of TrueLark, which built an AI-powered receptionist / front-desk automation platform. This is a pretty compelling use of AI, which could automate typical workflows and even handle things like appointment rescheduling, after-hour communication, and other tasks.

In total, management believes Weave has a $10 billion domestic opportunity, and maybe 3 times that when international is included. For a firm tracking to less than $250 million in revenue this year, that's a pretty strong addressable market opportunity. I don't believe Weave is lacking in growth potential or revenue recurrence.

Is There A Moat?

Weave has a few categories of competitors. Most of its truly direct competition are smaller, private firms like Demandforce and Solutionreach, who both offer similar "patient engagement" systems. More general-purpose CPaaS offerings from larger firms like RingCentral or Twilio also compete.

The key moat factor is a familiar one in business-to-business software: switching costs. There is money, time, and effort involved in integrating the system, creating and hardening workflows around it, and training staff on using it. Offices are unlikely to switch unless the advantages are substantial.

I believe Weave also has some advantages in winning new business over the aforementioned competition. For one, it is much larger than its direct competitors, with better brand recognition (42% of new clients knew the brand) and an excellent industry reputation (several Gartner "Best of" awards). Against the general-purpose providers, it offers functionality tailored to medical practices that are huge differentiators.

Still, I wouldn't consider anything more than a "narrow" moat rating here - and even that is stretching it. Switching costs are less prevalent in SMBs, as there is far less bureaucratic inertia to changing systems. SMBs are also frequently acquired or drawn down.

Management and Financials

Brett White is CEO, holding the role since late 2022, shortly after the firm went public. While not a founder, he has been with the company since its early days in 2020, and previously served in "C" level positions at Mindbody.

Under White, Weave's financial performance has been a story of continuous improvement. Growth has remained strong, in the 20-25% annual range. Gross margin has steadily risen from 57.4% in 2021 to 71.8% today. Free cash flow has gone from negative to almost $30 million in the last 12 months, a 14% margin. The balance sheet has no debt and close to $100 million in cash. Financially, the firm is in good shape.

Insider ownership is quite good, at 36%. Most of this is owned by venture capital members of the board who have been there since the beginning, but White has also accrued a decent 1.2% stake (about $9 million) in just a few years. In any case, there is ample evidence that leadership is incentivized to grow the company for the long term.

Risks

Weave falls into the "medium" risk bucket, in my opinion.

As we've touched on already, the focus on SMBs is a double-edged sword. On one hand, there are probably close to 250k small medical offices in the U.S., creating a large customer base. On the other hand, Weave's net revenue retention is under 100% (98%), meaning it churns customers at a decent rate and has few up-selling opportunities with current ones. The company will have to continually add new practices to grow.

Some PMS providers - like Kareo or Athena - are pretty large companies now looking for expansion. Adding features like Weave offers seems like a good way to expand their product offerings, and could possibly present a difficult competitive challenge for Weave. On the other hand, they could also be interested in acquiring Weave at a premium.

Finally, Weave is an early-stage company that is still growing into its business model. I'm making some assumptions on the valuation that may or may not come to fruition. If they don't, the price target could prove too high.

Conclusion

Weave offers an interesting communications platform that slots nicely on top of established practice management systems to provide a valuable customer service layer for the typical small healthcare office. By taking some of the work off of overburdened and understaffed front desk workers, and offering automated customer service solutions, it becomes an invaluable piece to the tooling of these operations. It also covers all of the bases we are looking for: recurring revenue, growth potential, some semblance of a moat, strong leadership, and good financial health. I'm comfortable adding it as a "green dot" pick to the Watch List today!

Now, what is a good price? Weave has more of a "long-tail" growth opportunity than an explosive one. I've modeled for 14% annual growth through 2029, offset some by a 4.5% annual share dilution rate (this is still an early-stage company). The free cash margin target is 17.5%, about in line with some other CPaaS providers. I've used a relatively high 11.5% discount rate to account for the speculation in my assumptions.

That gives me a target price of $11.75 per share, about 8% above the current trading price just under $11. We will park Weave Communications and look for a better entry point 25% or more below the target.