Teladoc Health (TDOC 1.51%) is the leader in telemedicine in the United States. With its extensive network of certified clinicians, Teladoc aims to provide health insurance companies and large employers with easy, remote access to physicians.
Before the coronavirus pandemic, Teladoc’s stock was steadily increases in value alongside its revenue and customer base, with an impressive 41% year-over-year revenue growth in Q1 2020 and 12-month revenue of $605.53 million. Amid a deluge of demand caused by the pandemic’s forced transition away from in-person health services, smart healthcare investors won’t want to miss the opportunity that Teladoc presents.
With little competition on the horizon, Teladoc is growing unchecked
For everything from skin conditions to mental health crises, Teladoc has resources in place to provide patients with the care they need. Once patients are enrolled in their health insurance or employer’s Teladoc coverage, all it takes is a web form and a phone call to get a consultation with a doctor.
The company’s doctors can use video calls to investigate symptoms, order medical tests and medications, and refer to specialists or emergency services. This means Teladoc is a great add-on service for patients whose primary care physicians are too busy for same-day appointments. It also means that Teladoc is positioned to capture some of the market share held by primary care practices and urgent care facilities.
Customers around the world have flocked to Teladoc’s well-rehearsed set of services. The company’s latest earnings report says its subscriber base grew 60.8% year over year, while total virtual visits by subscribers increased 92%. During the same period, existing customers used Teladoc’s services at a rate of 13.36% per year, compared to 11% in 2019. Although this increase is modest, keep in mind that it does not represent not the majority of the expected increase in use caused by the pandemic.
Importantly, with a profit margin of -16.24% and a return on equity of -9.82%, Teladoc is not yet a profitable business. Also, Teladoc’s debt of $482.49 million looks quite large compared to its $510.78 million in cash and $31.44 million in 12-month operating cash flow. To bridge the gap between revenue and expenses for the next several years while seeking to become profitable, the company in May issued $850 million of convertible senior notes to private institutional buyers. The notes are due in 2027, giving Teladoc plenty of time to grow and also to increase the efficiency of its service operations.
Efficiency aside, there aren’t many competitors threatening Teladoc’s market share. Currently, Teladoc’s competition includes other telehealth providers like Livongo Health (LVGO) and a myriad of small private telehealth companies like Zocdoc and buoy health. Compared to Livongo’s market cap of $6.62 billion, Teladoc is more than twice as large, with a market cap of $15.07 billion. Unlike Teladoc, Livongo emphasizes digitally connected medical devices as part of its telehealth service, which could be a competitive advantage. Livongo’s focus on telehealth for patients with chronic conditions like diabetes is significantly narrower in scope than Teladoc’s broad offerings, so it does not pose a major threat to Teladoc’s expansion to the moment.
Expect Teladoc to continue to grow and its stock to increase
Teladoc appears to be set for continued rapid growth over the next year solely due to the pandemic. But, it would likely rise steadily even if the pandemic hadn’t happened due to how effectively its service connects patients to clinicians on short notice.
If Teladoc struggles to become profitable over the next few years due to increased service usage caused by the new systemic focus on telehealth, its growth rate will likely decline. On the other hand, there is no indication that the company has yet made a major attempt to increase the efficiency of its services, so Teladoc management likely plans to focus on growth for a while longer.
Teladoc’s upcoming earnings report will explain more clearly how much the company has benefited from the increased demand caused by the pandemic. In the meantime, Teladoc’s rapid growth makes it a hot stock worth buying today.