If you’re ready to throw in the towel on Teladoc Health (NYSE:TDOC), I can’t say I blame you. TDOC stock gapped down in after-hours trading after the company delivered a mixed earnings report. On the top line, Teladoc continues to show real growth. But that is not translating to the company’s bottom line.
In fact, the expectation for a larger-than-expected EPS loss in 2021 is the main catalyst that the stock fell over 10% after delivering its earnings report. That would be one thing. However, Teladoc stock is down over 25% in 2021. And looking at the stock through a wider lens of 12 months shows a loss of over 30%.
As I said, I understand if you want to give up on the stock.
However, as my headline suggests, I think it’s too early to give up on TDOC stock. And investors may be getting an opportunity to buy the dip.
A 360-Degree View of Patient Health
Teladoc is not simply attempting to recreate the in-person doctor-patient experience via the internet. It’s using AI and other tools to create a fully integrated approach to mental and physical health. That’s the premise of the company’s Primary360 product which launched in the second quarter.
According to Teladoc, the goal of Primary360 is to put together “a full virtual care team for the consumer and integrating into the physical delivery system to get consumers the right care at the right time.”
Although the company did not name names, it said that they have already signed a contract with a national payer to use Primary360. Investors will certainly want to hear more specifics of this contract as well as on the other contracts that the company implied were in the works.
Revenue is Growing, But Profits Are Not
The bearish case for Teladoc is simple enough to understand. The company continues to add users. And revenue is increasing on a quarterly and an annual basis. But Teladoc remains unprofitable. Let’s look at both facts separately.
On the revenue front, Teladoc is benefiting from an increase of 500,000 members in the quarter. That brings total U.S. paid membership to 52 million.
But investors don’t have to look too far down the report to see why the stock gapped down. Teladoc had a larger than expected net loss of $134 million. That was significantly higher than the $26 million loss it posted in the prior quarter.
However, some of that loss was due to expenses related to its acquisition of Livongo Health. And that is starting to pay off.
Acquisitions Are Creating Sticky Revenue
The company’s flagship service is conducted on demand. If the service is covered by insurance, patients may not pay anything out of pocket at the time of service. However, as software-as-a-service (SaaS) companies have shown investors, recurring (i.e. sticky) revenue is a bullish sign. And that’s a reason for investors to keep their eye on Teladoc.
Teladoc acquired Livongo Health in 2020 which is turning out to be one of their key growth markets. Teladoc reported that access fee revenue for the quarter was 138% higher year-over-year and was responsible for 86% of total revenue. The primary driver for this revenue gain was the acquisition of Livongo as well as InTouch Health. Both companies charge subscription access fees for a majority of revenue.
This growth in subscriber base revenue is also occurring in the area of mental health which both Livongo and InTouch Health offer on a subscription basis.
In addition to the revenue Teladoc is getting from Livongo’s organic services, they also launched myStrength Complete, an integrated Teladoc-Livongo product that focuses on providing mental health services.
Add to Your Position in Small Bites
Nine analysts have either lowered their price target and/or changed their rating of TDOC stock since the earnings announcement. But overall, the sentiment is still bullish on Teladoc stock. The consensus of 27 analysts gives Teladoc a price target of $226.56 which is a gain of over 52% from the stock’s current level.
In the short term, Teladoc gapped down to a defined level of support and is bouncing back in midday trading. With the stock drawing a high degree of interest from institutional investors, now is an ideal time to initiate or take out a small position while volume is still light.
Before you consider Teladoc Health, you'll want to hear this.
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