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Wageworks Idea Proposal (WAGE)

Wageworks Idea Proposal (WAGE)
 

Will Wageworks’ organic growth continue at its projected pace of 9% to 14%?

 

Report Available:October 25, 2017

 

Blueshift’s initial research found a trend toward high-deductible health plans and growth in the consumer-directed benefits market. WAGE is the leader in this space and enters the enterprise selling season with solid growth in RFPs, while also offering innovative partnerships for pre-tax spending on carpool and parking commuter benefits. The market is highly fragmented and as WAGE continues to grow, there remains the possibility the company gets too big, service delivery suffers, and client renewal or product add-ons disappoints.

 

Observations

  1. There is a trend in the healthcare space with high-deductible health plans increasingly being embraced by large enterprises and their employees. A 2016 report shows that 40% of workers in large organizations are choosing the high-deductible plans over more traditional options. These plans are often paired with pre-tax savings options like Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs), leading to the rise in consumer-directed benefits, too. With open enrollment just around the corner, expanded health and financial wellness programs and increased customization of benefits are rising trends, according to a SHRM report.
  2. WAGE is the leader in consumer-driven benefits, administering pre-tax benefits to 6.5 million employees at more than 100,000 companies. WAGE’s Q2 earnings and revenue beat expectations as revenue grew 37% year to year, led by a 46% jump in healthcare revenue and 55% increase in COBRA revenue. Commute revenue increased 4%. As the enterprise selling season nears, the company noted that RFPs are up from a year ago, including for WAGE’s full suite of consumer-directed benefits. HSAs are the fastest growing product while the FSA offering is also expanding rapidly. Revenue growth in both products is 55% higher compared to last year. Nearly a year ago, WAGE acquired ADP’s CHSA and COBRA businesses, which includes having ADP sales reps offering WAGE’s full complement of products to ADP’s clients. WAGE raised its 2017 full-year guidance, expecting to finish the year above its targeted annual growth rate of 15% to 25%, with 9% to 14% coming from organic growth.
  3. WAGE also has partnerships with Uber and Lyft, offering commuters the benefit of paying for the ridesharing companies’ carpooling services with pre-tax dollars in what amounts to a 40% savings, similar to the commuter benefits for using public transportation to and from work. WAGE also offers commuters the chance to reserve and pay up to $255 pretax per month for parking near their office through the SpotHero app. These developments show WAGE’s attention to changes in how employees are living their lives and allows the company to reach an expanded demographic and increase the use of commute benefits. It also makes WAGE more attractive to companies in major cities deciding on a benefits provider. As WAGE continues to grow, customer service and execution because paramount. To that end, WAGE is participating in job fairs for inbound customer service positions.
  4. HQY is WAGE’s prime competitor in an otherwise fragmented market. HQY had a strong Q2 as well, beating earnings and revenue expectations with a 29% increase in revenue. The company focuses mostly on HSAs which reached 2.9 million members in the quarter, up 26% year to year. HQY opened 119,000 new HSAs in the quarter, a 40% increase from a year ago.

 

How do benefits managers evaluate WAGE? How does WAGE compare to competitors? Why are benefits managers choosing WAGE? Why are they choosing competitors? Which WAGE products are clients choosing? Are existing clients adding products? How are renewal rates? How high are switching costs? How is the selling season tracking from the enterprise perspective? How does WAGE do with small businesses? How is WAGE’s customer service? Has WAGE gotten too big? What is the effect of legislation on consumer-directed benefits? How is the political environment affecting decisions and delivery? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Benefits managers at enterprises, Benefits managers at small to medium sized businesses, and Industry specialists.

 

Companies: Wageworks Inc. (WAGE), Healthequity Inc. (HQY), Benefitfocus Inc. (BNFT), TriNet Group Inc. (TNET)

 

Research Begins: October 9, 2017