Interview Synopsis

SmileDirectClub – clear aligner positioning & turnaround potential

  • Public Equity
  • Healthcare
  • North America

Smiles have been few and far between at teledentistry company SmileDirectClub since it went public in 2019. Share prices have long fallen from its initial offering of USD 23, and this week the company announced a series of strategic actions, including plans to suspend operations in a number of countries and reduce the size of its workforce.

Headwinds continue to grind on SmileDirectClub

Speaking to Third Bridge Forum earlier this month, a former senior director at the company told us SmileDirectClub was facing a number of challenges – caused by rising inflation, changes to marketing data rules, and increased competition – that were making the company reevaluate its operations.

The specialist called inflationary pressures “a material headwind for the foreseeable future”. While they noted such pressures would not significantly impact the cost to manufacture its dental products or be “detrimental” to wages, the specialist said it would make it more difficult to convince customers to pay for something that isn’t a necessity – especially as SmileDirectClub targets lower-income consumers.

SmileDirectClub had previously been “very effective” at leveraging information from social media platforms to target customers. But the specialist said changes brought in by Apple iOS 14 in 2020 requiring users to opt into sharing data meant the company needed to discover “the net-new formula” to once again leverage social media effectively.

Finding a new formula would be more difficult as the company faces increasing digital marketing costs at a time when SmileDirectClub is looking to reduce marketing spending, but the specialist said it was an area that the company has “got to focus on”. The specialist said it must also improve the performance of its strategic partnerships with US retail chains such as Walmart and make better inroads with dentists and orthodontists – the latter of which have yet to be convinced that their products were of “equal calibre”.

However, the specialist said it would take time to establish brand credibility in both markets, and said that expanding into more personal healthcare products could help build brand awareness across them. The specialist added that moving into personal healthcare products would also have the benefit of increasing purchase frequency, improving cross-selling ability and sales conversion of its aligners.

The teen market also represents a “big opportunity” for the company. However, the specialist said it is dependent on SmileDirectClub increasing business with dentists and orthodontists. These relationships will go a long way to seeing whether SmileDirectClub can challenge the “800-pound gorilla” that is Align Technology, the specialist said.

The specialist said that the market value SmileDirectClub has at the moment could lead it to be acquired by a rival healthcare company. As speculation mounts as to who that might be, the specialist mentioned Align as a possible player who could pick it up as a way to remove a threat, or incorporate it into its business to offer two options for consumers at varying price points.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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