Noom promises its clients that the services delivered through it’s digital platform will help you lose weight without being on a diet. It describes itself as ‘a consumer-led digital health company that helps people live healthier, happier lives.’ The health focused app provides coaching based on psychology as well as nutrition and exercise insights. Noom is one of the most downloaded health apps in the world on both Android and iOS. It was the first virtual health provider certified by the CDC – including it’s diabetes prevention program. Noom is aiming for an early 2022 IPO with an anticipated valuation of $10 billion.
- Founded in July 2008 by Artem Petakov and Saeju Jeong.
- From the start, the brand focused on a holistic approach to health
- Noom has raised over $650 million. The company has 10 lead investors including: Serena Ventures, Silver Lake and Sequoia Capital.
- According to the company they reached $400 million in sales in 2020.
- The company was sued for their automatic renewal practices which have been alleged to be deceptive and illegal.
- The class action lawsuit is still ongoing after a judge denied Noom’s requests to dismiss the case. Legal analysts estimate the class action suit could cost the company as much as $100 million.
- After their last round of fundraising in May 2021 led by investor Silver Lake, they were valued at $3.7 billion. The anticipated early 2022 IPO could value Noom in excess of $6billion.
Noom at a glance
Noom was founded by Artem Petakov, President, and Saeju Jeong, CEO. Both have extensive experience in the business world starting and running companies. Their prior experience in industry has helped them be successful in this venture.
Prior to co-founding Noom, American computer scientist Petakov co-founded WorkSmart Labs and served as the organization’s CTO. Born in the Ukraine, he immigrated to the US as a young person. He also worked as a software engineer for Google. While at Google, he started and led the GeoSearch project on Google Maps. Also, he was part of the successful RoboCup project at the Free University of Berlin. Other industry experience includes Sun Microsystems and Microsoft. He earned his BA in 2004 from Princeton University where he concentrated on computer science, finance and theater.
Jeong is a successful entrepreneur and engineer from South Korea. He co-founded a company called BuyHard Productions in 1999, a media business, and served as the CEO for two years. He currently is a board member of the Chonnam Hospital, the largest private hospital in South Korea, and a steering committee member of South Korea’s Ministry of Science and Technology. He earned his BS in 2003 from Hongik University where he concentrated on electronics and electrical engineering.
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Both Jeong and Petakov are motivated by an intense desire to help people. Jeong was raised in a family of doctors which helps him be comfortable in the health industry. Together they founded the health start-up, Noom, which has millions of clients. What’s unique about Noom is that it goes beyond just a diet app and uses artificial intelligence and educational tools to help people improve their overall health by encouraging lifestyle changes. The company was initially bootstrapped in 2008 by the co-founders and received it’s first round of outside investment in 2011 from a group of investors led by Kleiner Perkins. The app was launched in 2016. Users from around the globe can use either the website or via app.
Noom’s collection of apps are designed to help users change their behaviors to meet their wellness goals. While the first health issue they focused on was weight, they are expanding their services to help people with other conditions including anxiety, hypertension and diabetes. After a user joins, they answer a brief survey about themselves and then Noom’s proprietary algorithm creates a health plan for them and matches them with a coach. The dietary plan utilizes a unique system based on a traffic light analogy. Red means stop. Green means go. Yellow is warning you. Foods are sorted in the red, yellow and green categories based on their caloric density. This visual system provides immediate feedback to help users make better decisions on food intake.
Noom and it’s founders have won many awards, including:
- 2017, Red Dot Communication Design award for the high quality design and creativity of it’s mobile UX – there were over 8000 submissions for this award in 2017
- 2018, Indigo Awards, Silver Award for mobile applications
- 2019, Inc. 5000’s Most Successful Companies in America for being the 212th fastest growing company in the US
- 2019, Crain’s New York Business Fast 50 Awards in recognition of their growth
- 2019, Deloitte 2019 Technology Fast 500 Award in recognition of their growth
- 2019, BuiltIN NYC 100 Best Places to Work in NYC
- 2019, Crain’s 100 Best Places to Work in New York
- 2019, Glassdoor Top 100 Places to Work in the U.S.
- 2019, Fortune Magazine, 54th Best Workplace for Diversity
- 2019, CB Insights’ Digital Health 150 list of most promising private startups
- 2020, CEO Jeong was recognized as an Entrepreneur of the Year by Ernst and Young
- 2021, CNET Best Weight Loss programs
Back in 2017, CEO Jeong had this to say about the Red Dot Communication Design award, “Winning the Red Dot 2017 is a huge honor and represents the passion of our design team to deliver the best experience to help people live healthier lives. This recognition reinforces UX as an incredibly important component toward keeping users engaged so they can successfully change their behaviors and prevent chronic conditions.” To receive so many accolades, a company must have a strong foundation. The brand is buoyed by a three-stranded cord of guiding principles that are braided throughout the user’s experience: psychology, technology, and human coaching. Noom’s mission is for Noomers (i.e. Noom clients) around the world to take control of their own health.
Currently there are more than 45 million Noomers. In January 2020, Noom reported that they had quadrupled their revenue to $237 million. As amazing as that is, this wasn’t the first time they quadrupled revenues. In 2017, their revenues were $12 million. And in 2018 revenues were $61 million. While the co-founders remain, they have added additional strong expertise with new executives joining the team in the lead up to the IPO. One notable addition is the 2021 hiring of Aaron Komo, formerly of Target, to lead marketing.
Related: You can learn more about IPOs here.
Noom Fundraising to know about
In the course of 10 rounds of fundraising, Noom has raised over $670 million since their founding in 2008. Here’s a breakdown of the key Noom fundraising over the years:
- Seed Round: 12/2011, $2.6 million, Kleiner Perkins lead investor
- Seed Round: 06/2013, $5 million, Qualcomm Ventures lead investor
- Grant: 10/2013, undisclosed amount, provided by National Institutes of Health
- Series A: 12/2013, $7 million, RRE Ventures lead investor
- Series B: 04/2014, $16.2 million, InterVest Co. lead investor
- Series C: 03/2016, $14.5 million, Samsung Ventures lead investor
- Series D: 03/2018, $14 million, Sampo Holdings lead investor
- Series E: 05/2019, $58 million, Sequoia Capital lead investor
- Venture Round: 09/2019, undisclosed amount, Serena Ventures lead investor
- Series F: 05/2021, $540 million, pre-money valuation $3.16 billion, Silver Lake lead investor, $3.7 billion post-money valuation
Noom has acquired one company: Opus Growth. Opus Growth is a marketing and advertising company focused on performance in mass media. Noom acquired the company for an undisclosed amount in May 2020.
Path to the Noom IPO
Noom officially reached unicorn status with its Series F fundraising that closed in May 2021. The post-money valuation was $3.7 billion. The company has been exploring the best time and avenues for an IPO since at least 2020. In 2020 after winning Entrepreneur of the Year from Ernst and, Jeong had this to say about his vision for the future of Noom, “Weight loss is our first, flagship program, but it is just beginning. We’re now expecting to help more people in more ways, in more places.” Undertaking an IPO would provide an injection of capital that would help Noom continue it’s fast trajectory of growth. They have not yet filed their S-1; but they have retained Goldman Sachs to oversee and advise on the process. Neither Noom, Goldman Sachs or any lead investors in Noom have commented publicly about the upcoming IPO.
What investors should know about the Noom IPO
As an investor, you’re aware that there are risks involved with all investments. Let’s explore what type of risks investors might need to consider with a Noom IPO. One way to do this is to think through the pros and cons of a company.
Some concerns voiced by industry experts around the future of Noom include:
- Sustainability of COVID-era growth
- User churn rate
- Class action lawsuit
Noom has grown exponentially the past five years and the growth rate skyrocketed during COVID while many people who were sticking close to home had more time to think about their health. At the same time, many people in the U.S. experienced moderate weight gain from the lack of activity during COVID and turned to Noom for help losing it. Another concern in general is keeping users – in the health tech space, the church rate of users is a problem. And, taking a step back from technology, it is hard work for people to change their lifestyles to become healthier. In general, not many people are able to maintain health habits long term – especially if they start off in a very restrictive diet plan.
Another thing to consider is that there is a high degree of competition in this industry. Many companies have free or lower-cost apps which cost less than $10 monthly that advise people on nutrition and exercise and help them to track intake and movement. While the competitors don’t necessarily have the scientific backing of Noom, the price point differential is real. The typical Noom user pays an average of $59/month.
The final risk to consider is the ultimate impact of the BBB complaints and class action lawsuit regarding Noom’s cancellation practices. The class action lawsuit could cost the company up to $100 million. The crux of the case is that some former customers feel that the free trial and cancellation policy is confusing. Noom offers a 14 day free trial and customers allege that the prompt to cancel the subscription has you send an email to Noom; but to complete the cancelation process, consumers need to cancel from their app store where they purchased the app. Noom has not commented on the lawsuit; however, the cancellation process for their app is the same as the process for cancelling all other paid apps in iOS or Android app stores.
Despite concerns, there are things Noom and industry experts cite as positives:
- Growing 100% year over year
- High gross margins
- Stellar UX
Noom has attracted many investors and analysts’ attention due to its fast growth. It has grown at 100% year over year with last year’s revenues hitting $400 million. Due to having health consultants as contractors and its impressive AI base, it has high gross margins. There are start-up unicorns that have yet to become profitable prior to going public but Noom has been profitable for some time. This profitability is very attractive.
Additionally, the UX is very intuitive to use and beautiful to look at. The founders have shared that they have positioned and designed the app to be more like meditation apps such as Headspace rather than weight loss apps such as Weight Watchers or MyFitnessPal. A significant benefit of Noom is that its programs are evidence and research based incorporating psychology, neuroscience and nutrition science. There was a large scale study evaluating weight loss using mobile applications and the study showed that 78% of Noom users lost and sustained their weight loss during the 9 month period of the study. And in 2017, the CDC granted full recognition for Noom’s Diabetes Prevention Program – this cleared the way for Noom to become the first virtual provider to achieve this status and starting in 2018, meant that Medicare patients could be reimbursed for utilizing the program. President Petakov told Forbes in an interview that Noom isn’t a diet; but rather, “a behavior change product that requires a very subtle touch to nudge people.”
There is plenty of market remaining for Noom to capture. The CDC estimates that over 40% of American adults are obese. Obesity has been connected to a variety of health risks and poorer health outcomes. So many are aware of their weight issues or being encouraged by their doctors to reduce their weight. The weight loss market includes everything from weight loss retreats, weight loss surgery, nutritionists, supplements, apps, and fad diets. Just in the US, the market is $75 billion and growing at a rate of 4% annually. The opportunity is huge. Major competitors include Weight Watchers, Medifast and Nutrisystem; all three are publicly traded. Noom has competition from private companies too including: ShareCare, mPulse mobile, Lark Health, RedBrick Health and CureFit. It also competes with MyFitnessPal and the health related apps from Peloton and Apple.
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Noom is exploring an IPO – it could be as early as the end of 2021; but could also be in 2022. No investor is exempt from risk. The company is poised to benefit from the overall growth in the weight loss market as well as from the trend of adults gaining weight during the lockdowns and remote working phase of the COVID-19 pandemic and now wanting to lose it. If the company can continue bringing in new customers and keep existing ones, there is a potential for gain.