Fifteen months ago, Teladoc Health, Inc. (NYSE: TDOC) could seemingly do no wrong. The virtual healthcare provider’s stock climbed above $300 amid surging interest in all things remote.
Little has gone right since for the former pandemic superstar.
Hospital and health clinic facility reopenings and a wave of competition have sunk the shares to below where they were when the coronavirus first broke out.
Currently trading in the mid-$30’s, Teladoc is woefully under the weather having seen more than $40 billion slashed from its market value. The reasons behind the latest drop aren’t pretty, but they also don’t merit a surgeon’s general warning.
Teladoc is still the leading player in a growing telehealth industry that was merely fast-forwarded by Covid-19. The company has some issues to sort through but this could ultimately amount to a tremendous buy opportunity for a stock with a healthy long-term outlook.
Why Did Teladoc’s Stock Price Drop?
Last week Teladoc shared first-quarter results that came with a shocking diagnosis. Although revenue was up 25% year-over-year, the company recorded a $41.58 net loss per share largely due to a $6.6 billion non-cash goodwill impairment charge. On an adjusted basis, the net loss wasn’t as bad as the Street feared, but the massive writedown was staggering.
It didn’t help matters that management was unusually vague about the details of the impairment. With most of its goodwill associated with the 2020 acquisition of health management app Livongo, we can only assume this to be the main source. Appropriately, sharp downward revisions in telehealth company multiples have forced Teladoc to recalibrate its asset values.
Adding to the selling pressure was management’s outlook for lower than expected full year revenue and a steeper than anticipated net loss. The two main factors for the guidance cut are 1) increased advertisement costs in the mental health segment and 2) delays related to health plan and employer reassessments of their chronic care strategies.
What are Teladoc’s Long-Term Growth Prospects?
The silver lining here is that the current headwinds are probably temporary. Teladoc’s BetterHelp mental health business is experiencing high demand with the world’s attention on mental health issues on the rise. Eventually, marketing dollars should stretch further as costs moderate and more offerings are introduced.
Ditto for the delay around chronic care spending. The unpredictable nature of a pandemic that is still very much having an impact on corporate decision-making is a legitimate reason for customers to pause. Over time, spending in this area will resume rather than go away.
As the near-term hurdles are cleared, Teladoc will have a very large opportunity at its disposal. Fortune Business Insights forecasts that the global telehealth market will grow 32% annually from 2021 to 2028. This is because people worldwide are expected to become increasingly comfortable with online health consultations in the post-Covid world.
A recent Piper Sandler survey found that 82% of consumers think telehealth is equivalent to or better than in-person care. The convenience factor alone should go far in a consumer environment where tech-forward solutions to daily life are becoming vital.
An influx of startups going after this demand is a threat to Teladoc, but its leadership position should allow it to fend off the competition. No virtual care app has been downloaded more than the Teladoc Health app. The company is quickly closing in on 100 million members and relationships with over 10,000 health care providers that will only expand.
Teladoc still has a long runway to address the world’s primary care, mental health care, and chronic care needs virtually. It is projecting 25% to 30% annual revenue growth the next three years. This is expected to be driven by increased market penetration and new product launches that lead to more revenue per member.
Is Teladoc Stock a Buy?
The cost and revenue delay pressures facing Teladoc likely won’t be around this time next year. Granted, new pressures could arise that weigh on profitability but that is part of the growing pains for high-growth companies.
With the global telehealth market still in the early stages of a long-term growth story, Teladoc will have ample opportunity to pick itself up off the ground. It is a clear leader in the space and the only provider of comprehensive virtual care technology.
Sell-side research firms expect that Teladoc’s bottom line results will improve substantially heading into 2023. That is when analysts are projecting a much narrower net loss and potential first signs of quarterly profits.
Barring a major pandemic setback, we won’t see Teladoc’s stock return to $300 or even $100 anytime soon. But the worst is likely over and the downside is limited. A favorable risk-reward is evident for the long-term investor.
Teladoc is in the business of delivering “whole-person” healthcare to patients everywhere. The investment will require a different kind of patience—but it will be time well spent in the waiting room.