Virtual health care provider Teladoc (NYSE: TDOC) has become synonymous with a group of "stay-at-home" stocks that have drastically outperformed the broader market in 2020. While the company has certainty benefitted from a spike in demand for telehealth services brought upon by the coronavirus outbreak, it is far from a flash in the pan.
The pandemic has only accelerated what was already a huge growth opportunity. According to Grandview Research, the global telemedicine market reached $41.4 billion in 2019 and is forecast to become a $155 billion market by 2027. With the only global footprint in the telemedicine industry, Teladoc is in a strong position to capitalize on this growth market.
From the onset of the COVID-19 crisis, patients and medical practitioners have increasingly turned to Teladoc's remote medical services platform as a safer, more accessible alternative to in-person doctor visits.
With Teladoc shares having nearly tripled since the start of 2020, however, many investors are wondering if the growth will remain healthy.
Demand for virtual care is expected to remain strong for years to come as people continue to embrace its safety, convenience, and cost-effectiveness. The company has recently noted sustained demand for its services in places where the coronavirus curve has flattened.
Let's take a closer look at Teladoc's business model, recent performance, and whether or not it belongs in a growth portfolio.
What Does Teladoc Do?
Teladoc offers a variety of services to both U.S. and international customers. Through Teladoc Health Medical Group, it directly delivers millions of medical visits each year in 175 countries. Patients are connected to health care providers associated with thousands of hospitals, health systems, health plans, insurers, and physician practices. Ailing patients don't have to get out of their pajamas and into the car while doctors' offices can see more patients and run a more efficient operation.
Teladoc's services portfolio covers over 450 medical subspecialties from non-urgent needs like the common cold and flu to chronic conditions like heart failure and cancer. Its highly flexible technology platform is used to complete millions of telehealth visits via the Internet, mobile devices, video platforms, and phone.
The company derives most of its revenue from subscription access fees. People subscribe to one of its services to receive ongoing access to on-demand virtual care services. Teladoc's paid U.S. membership base has almost doubled since last year to 51.5 million. Its core subscription model is attractive from an investment standpoint because it produces a visible, recurring revenue stream.
It also generates visit fee revenue from people that prefer to purchase one-time consultations rather than commit to a membership plan. The number of people that have opted for visit fee only access in the U.S. has more than doubled from a year ago to 21.8 million. Having this component of the business opens its doors to a broader customer base and makes for a more flexible business model.
What has been Teladoc's Recent Financial Performance?
Teladoc just reported second-quarter results that included an 85% revenue surge to $241 million. Subscription access revenue increased 64% driven by strong adoption in the U.S. market. Visit revenue more than tripled to $58.9 million with U.S. visit fee only sales soaring 449%. The total number of patient visits increased 203% to 2.8 million.
It recorded a narrower net loss of $25.7 million compared to the $29.3 net loss posted in the same period last year. Adjusted EBITDA went from $6.3 million in Q219 to $26.3 million.
Still in an early, high growth phase, heavy investment in building out its doctor network, technology platform, and marketing awareness has put profitability out of reach for the time being. However, as memberships and sales continue to grow and reach a critical mass, Teladoc's 60%-plus gross margin should eventually deliver sustainable bottom-line growth.
Refuting the notion that the recent pandemic-induced demand is likely to wane as market conditions normalize, the company noted that business activity in the late May to early June period remained strong. Utilization rates have stabilized at 40% above pre-COVID-19 levels. This offered a glimpse into the demand for virtual care in the post-pandemic world.
It also gave management the confidence to raise its full-year outlook. The company expects 2020 revenue to be $980 to $995 million. Adjusted EBITDA is forecast to be in the $85 million to $92 million range. This was a significant upward departure from the prior guidance of $60 million to $70 million.
Is Teladoc a Buy?
Many investors are wondering where Teladoc goes from here. COVID-19 has put the spotlight on telemedicine and led to heightened consumer awareness. As more people continue to embrace virtual health care services, the global industry leader is likely to benefit immensely.
Meanwhile, more healthcare providers, health plans, and insurers are going to adopt the Teladoc platform in recognition of lower cost-sharing and operational efficiency gains.
Teladoc has numerous growth levers. Behavioral health has been a particularly strong growth driver due to an increase in the utilization of mental health services and company upselling of mental health services to existing customers. An enhanced global focus on mental health is turning virtual mental health care into a large, untapped market opportunity.
Teladoc recently tapped into another new growth area by launching the industry's first pediatric telehealth platform. Through a collaboration with Cincinnati Children's Hospital Medical Center the pilot program has been well received by Cincinnati-area families. Soon this platform will be available to pediatric hospitals and medical centers globally.
Teladoc has also relied heavily on its inorganic growth strategy. On July 1st it acquired virtual care provider InTouch Health to cement is leadership position in hospital-based telemedicine. InTouch is forecast to grow more than 35% this year. Teladoc will likely continue to add value-added telehealth companies to expand its distribution capabilities, broaden its service offerings, and solidify its global footprint.
Since becoming a public company in July 2015, it has amassed a highly scalable set of products, capabilities, clinical specialties, technologies, and distribution channels. Its diversified portfolio of virtual health care services can be replicated on a global scale with low incremental cost.
The company expects 2021 revenue growth of 30% to 40%. Given the current membership and visit growth trends along with management's tendency to under promise and overdeliver, there is a good chance this estimate is surpassed.
Teladoc is at the forefront of a major healthcare transformation. Investors should consider any weakness in the share price as a long-term buy opportunity.
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