Is this crushed telehealth stock worth a second look?
Teladoc Health (NYSE: TDOC) rode the wave of pandemic stocks to new heights in 2020 on its promise to revolutionize patient access to healthcare. Yet, although it continues to increase individual patient visits, the company continues to lose money.
In this music video for “The Rank”, recorded on February 14Motley Fool contributors Matthew Frankel, CFP®, Jason Hall, and Tyler Crowe discuss the rise and fall of Teladoc, its short-term roadblocks, and whether this once high-profile healthcare company flight deserves a place in your portfolio or not.
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Matt Frankel: Teladoc is the leader in virtual health services. They have partnerships with companies like CVS and Centene. They’re #1, they’re the best when it comes to virtual healthcare. Their progress has been phenomenal. Obviously in 2020 their business went absolutely crazy when you couldn’t go to the hospital or couldn’t go to a doctor unless you actually had COVID or had a procedure essential you needed. But that’s what makes their recent numbers even more impressive. In the third quarter, which is the most recent, we have data for their report until the 22nd of this month. Their revenue was up 81% year over year, 3.9 million individual visits in the quarter, a 37% increase year over year. But the company is still losing money.
Here are my concerns. The company is still losing money. Their loss widened to just over $400 million in the first nine months of 2021. A pretty big loss. No clear path to profitability at this stage. For me, it’s unclear what’s going to take them to the next level now that COVID is over. They are not a pure disruptor. In the sense of saying a DocuSign is that it took a process that was already flawed, made it better. Teladoc, it clearly provided a temporary solution to many things. I can go see my family doctor now, for example. I couldn’t do this a year ago. My big question and hesitation has been, what happens in a post-COVID world? But like I said, the Q3 numbers were on top of those early COVID pops or they speak for themselves and the new lower valuation. Right now, they’re trading for less than they spent on an acquisition last year. When they acquired Livongo. I think they actually spent more than the $11.7 billion market cap they currently have. I do not have in front of me the exact figure for this acquisition. There are other competitive threats. I see Tyler making a face, there’s like, I can’t wait to jump in on this.
Tyler Crowe: No, I just heard they’re worth less than an acquisition they made a year ago. [inaudible 00:06:26].
Frankel: To be fair, I think the acquisition was in stock, so you can argue that it evens out. Amazon just recently launched its nationwide telemedicine services, which is another concern of mine when it comes to the stock. Like I said, at the new lower valuation, it looks like it’s worth revisiting. Guys, we can start with Tyler on this one I guess.
Crow: I’m not going to let this be offensive to Matt, probably not offensive to Jason, but the three actions you mentioned, ReachedTeladoc and Shopify. I never looked at them. I really don’t know anything about them. I know it’s weird. I know these are popular actions they are just something I have never watched. I probably own them as part of a follow-up. For example, I track services in my portfolio, but other than that it can be just scraps of paper. But my current question is a bit more about generic investing and I think that might be a fun topic to ponder for a minute or two. As you said it’s a company that’s been losing money for a while and with a growth stock like this or something that has the potential for disruption how much leash or when do you start to look at something like that and say, OK, this deficit, it really starts to break the thesis.
Frankel: One of my big things with Teladoc is, first of all, over 90% of household income. They still have a ton of international growth potential that I wanted. They obviously have to get much bigger to create a path to profitability. They have disruptive potential, but my big questions are one, how much healthcare can really be moved online in a post COVID world? I don’t care what capacity my computer has. There are some things I don’t want to do in front of a webcam [laughs] which I’m willing to do in my doctor’s office and I mean, it sounds silly, but it’s true for a lot of people. My big question is how much healthcare can be moved online and how much of the disruption has already been brought forward because of COVID. So I know Jason likes this one too.
Jason Hall: I do, and here’s a caveat. In fact, I didn’t say it on crazy live Where In the wings because honestly, it’s just a matter of timing. But I actually cut my Teladoc position about two weeks, 10 days ago somewhere out there. Just a little bit. And partly because I had made some pretty substantial investments in the business along the way. I still think telemedicine is going to be an order of magnitude bigger five years ago than it was on December 31, 2019. The thesis was never about COVID and talked about that high stock then that the price was so much higher when he closed the Livongo deal. There was just a huge exuberance about the prospects for this industry, which is going to be huge, it’s going to be absolutely huge. That we pay for a lot of future results. I want to say and what’s changed #1 I think we’ve seen Teladoc stocks ride the same cloud services high growth roller coaster over the past year that so many other big stocks have made. I want to say, ZoomIt’s a great company and its stock has gone down tremendously. CrowdStrike. I could throw 100 names out there and if it’s a cloud services, software as a service company, they’ve been through the same roller coaster.
For Teladoc with me, I think the things that concern me the most, I think it will continue to generate better numbers in the future. As you were talking in the third quarter of more visits, more patients, all metrics were better than they were the year before, which was like the peak of people using telehealth for stuff related to pandemic. But you go back three or four years ago, the whole story is access to care and reducing the cost of care. You think of so many people in the United States, they don’t have access to a specialist. As we get older, if you live somewhere in the Midwest, if you live in a rural area, the closest cardiovascular specialist, the best access to cancer doctors, it might be a four or five hour drive to go to a specialist. If you want a second opinion, you have to drive five hours the other way. It is unachievable. I think all of those things are there for Teladoc. From everything I’ve seen, Teladoc continues to struggle with this Livongo integration and what they’re encountering are very different corporate cultures from what I’ve heard. It’s a real challenge and it’s really important because Livongo and all the tools to treat chronic diseases and this thing are really important for Teladoc as an integrated platform. It is really very important. And at the same time I mentioned Zoom. Zoom is looking to really get into healthcare. Microsoft is already in the field of health. There are a lot of very big competitors. It’s going to be a big space and I think there’s going to be a lot of winners. Six months ago, I would have put one or two on this list. I raised it to five because I’m just not as convinced as before that it’s going to be as big a winner as I think. But it’s still one of, cost-wise, one of my biggest investments.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jason Hall owns Shopify, Teladoc Health and Zoom Video Communications. Matthew Frankel, CFP® has no position in the stocks mentioned. Tyler Crowe owns Amazon, CrowdStrike Holdings, Inc., DocuSign, Microsoft, Teladoc Health, and Upstart Holdings, Inc. The Motley Fool owns and recommends Amazon, CrowdStrike Holdings, Inc., DocuSign, Microsoft, Shopify, Teladoc Health, Upstart Holdings, Inc., and Zoom video communications. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.