Teladoc Health (TDOC), despite its groundbreaking telehealth platform and a whopping 93 million U.S. members, has not been the easiest stock to hold onto lately. Over the past three years, it’s seen a staggering 88% drop. This begs the question: Is investing in Teladoc a wise move right now, or is it headed for continued struggles? Let’s explore this further.
### Is Telehealth Still on the Rise?
Proponents of Teladoc argue that owning such a high-profile telehealth operation spells long-term gains, thanks to the company’s significant economies of scale. It isn’t just about the numbers, though; Teladoc’s success hinges on its deeply integrated ecosystem, which encompasses behavioral health, chronic care, and strong insurer ties. This comprehensive network is designed to keep patients engaged and less likely to switch to other telehealth providers, thereby creating multiple advantageous network effects.
However, 2024 hasn’t been particularly kind to Teladoc. Their third-quarter numbers show a 3% dip in revenue, down to $640.5 million, while adjusted EBITDA decreased by 6% to $83.3 million. Even BetterHelp, their promising online behavioral-health platform, saw a 10% drop in revenue, hitting $256.8 million.
While telehealth isn’t fading away completely, the industry’s rapid growth, fueled by the pandemic-induced shift to remote care, seems to have plateaued. Now, the challenge lies in establishing profitable, sustainable operations with reliable reimbursement models from insurers and other institutional clients. Teladoc still has ground to cover in this regard, facing hefty selling and marketing expenses of $883.9 million over the last year and operating losses at $196.5 million. These costs make up a substantial 51.3% of their revenue, indicating a lot still needs to be done before investors start seeing solid returns.
### The Case for Buying Teladoc
In the immediate future, there’s no glaring reason to rush into investing in Teladoc stock. Long-term projections, however, suggest the company could potentially achieve steady profitability, as there’s no evidence that Teladoc lacks the ability to enhance efficiency. Also, while their revenue is slightly contracting, this doesn’t necessarily mean competitors are stealing their market share; their core membership remains steady. The path forward involves pulling more revenue from each member annually and trimming overhead costs like marketing.
Though challenging to accomplish in a short time, these objectives are plausible over a few years. Moreover, Teladoc isn’t desperately racing against time to reach profitability. Reducing expenditures in non-critical areas, such as research and development, could quickly tilt Teladoc into generating positive cash flow.
Is there then a viable case for investing in Teladoc because of its future potential? Yes, albeit a cautious one. At an enterprise-value-to-revenue multiple (EV/R) of only 0.9, the market seems overly skeptical of Teladoc’s ability to realize strong sales growth or profitability relative to its overall valuation. Given this low valuation and recent weak performance, there’s room for upward correction as market sentiment improves over time.
Despite the uncertainties and lack of a clear turnaround on the horizon, for those prepared to accept some risk and hold onto the stock for a few years, it’s enticingly valued. However, there’s no urgency. If Teladoc Health piques your interest, it might be more prudent to keep it on your radar and wait for signs of improvement before diving in.
