Teladoc Health, Inc. (TDOC $142.98)
“TelaHold”
By: Adam Webb, AIM Student at Marquette
University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- Teladoc
Health, Inc. (NYSE: TDOC) is a leading
provider of telehealth assistance. TDOC covers numerous medical needs and is in
the process of growing its treatable
conditions. This has allowed TDOC to consistently increase its client visits
every year represented by 16.4% this year compared to prior.
- As Covid-19 becomes less prevalent in society, Teladoc is losing its tailwinds that resulted from lockdowns and the virtual world. However, it is exposed to an increased total addressable market relative to before the pandemic as well as vast expansions in its mental health operations and a change to a value based care revenue model.
- As the Livingo business has become engrained in Teladoc’s operations, the company has been able to differentiate itself from its formattable opponents like the Google backed Amwell, and Amazons attempt telemedicine Amazon Care.
- TDOC has a healthy balance sheet and will be able to cover its expenses for the foreseeable future allowing the company to continue to pursue the strategic goals and disruption that were stated when the company was pitched in 2019.
Key
Points
A study by Mckinsey & Co.
suggests that after reopening, telehealth is used more than prior to the pandemic
at a multiple 38x, and is likely to stay at that level. Qualitatively, we are
seeing the stay-at-home renaissance in the workplace, so should we expect to
see that in the healthcare industry aswell? Logic says that if one is not keen
on commuting to work every day, that person will not have a desire to meet with
their health care provider in person for things that can be taken care of
virtually. Surveys conducted on physicians claim they also are now more keen on
telehealth than prior to the pandemic. Prior to the pandemic 11% claimed they
would practice medicine virtually, now 40% claim they will.
TDOC saw the opportunities for its
virtual services when the pandemic came about. The company increased its
Marketing expense by 106%, its Selling expense by 137%, and its R&D expense
by 155%. This resulted in an explosion in brand awareness as according to
Google Trends, the company generates on average double the amount of interest
as before the pandemic. In addition, the digital renaissance has forced people
to gain competence in virtual meetings and the internet. In particular, the
highest spending health care clientele elderly people. The demographic with the
lease experience to the internet, post pandemic has had the opportunities to
gain the ability to become proficient in internet use and virtual meetings.
Such a phenomena may be responsible for TDOC’s continued revenue growth even as
lockdowns and Covid-19 infections taper.
Numerous competitors have entered
the telemedicine sector like Amwell, Google Health, and Amazon Care. Of these
competitors, Google Health recently shut down, and Amazon Care is yet to make a
meaningful market impact. Amwell remains the only formattable competitor but
has lagged TDOC. TDOC’s revenue has grown by 120% year over year while Amwell
decreased by 12% year over year with visits going down from 1.6 mil to 1.3 mil quarter
over quarter. Not only has TDOC become the choice company among consumers, but
businesses as well. It recently gained a use contract with HCSC, the fifth
largest health insurance company in the US. As the Livongo merger settles in,
we have understood more about the rationale of the acquisition. The Livongo
merger allows TDOC to conduct whole person care delivery, and switch from a
fee-for-service revenue model to value based care revenue model.
The disruptive thesis that was
pitched in 2019 is still much in play. Of the many areas that Teladoc could continue
to disrupt, mental health is becoming a prime candidate. Mental Health has
become one of the most dynamic and most talked about areas of healthcare as
stigmas against it continue to be disproven. It is estimated that one in five
people struggle with their mental health. In addition, 56% of counties in the US
don’t have a psychiatrist, 64% of counties have a shortage of mental health
providers, and 70% of counties lack child psychiatrist. TDOC hopes to be the
answer to this under cared for space.
What has the stock done
lately?
Teladoc has fallen from $165.29 to $138.867 (-15.38%)
since July 1st. Its downward trend has returned -9.81% against the
Russel 2000 and has been apart of a greater pullback Covid-19 winners are
facing. The equity price sits well below its 50-day moving average of $144.98.
Past
Year Performance
Teladoc started the past year at a
price of $200.77 and rose to its high on February 2nd 2021 of
$286.58 but has fallen down to $143.09 accumulating a -28.71% performance
year-to-date. A laggard in comparison to the Russell 2000 benchmark IWM which
finished up 47.60%.
As people attempt to put Covid-19
behind them, they won’t forget the lessons they learned. Teladoc will come out
of the pandemic superior to before. The expansion of addressable markets,
domination of competition, and business model will ensure that Teladoc’s
disruption will continue into the future and the company will find a path to
profitability.
