Teladoc Health (NYSE:TDOC) saw its revenue increase by 98 percent for the full fiscal year that ended on December 31, 2020, as the company quickly rose to prominence and became a COVID stock darling. As a result, the company's stock price increased by more than 130% between January 2020 and the end of the fiscal year in December. During the same time period, the S&P500 returned 18.4 percent, which was a significant increase over the previous year's performance. The year 2021, on the other hand, has been quite different.
The stock of Teladoc has been in a downward spiral for some time, and it is currently trading at a 68 percent discount to its all-time high. A further possibility is that investors are selling in an effort to move away from risk as they rerate their exposure to it and take into account potential interest rate hikes and inflation concerns.
These market dynamics have resulted in a compression of valuations across the board in the broader market. These pullbacks, on the other hand, are viewed positively by some investors who see them as a buying opportunity. Examine the situation to determine whether the current decline is justified, or whether it represents an opportunity to purchase a great growth stock at a discount.
What Is Teladoc?
Teladoc is the largest virtual healthcare company in the United States. It offers virtual medical consultations with licensed state physicians as well as services based on AI, analytics, virtual care programs, and telehealth devices.
Users have open access to board licensed doctors via the Teladoc website or mobile app. The platform allows individuals to avoid surgery or clinic wait times while saving on logistical costs. Clients can offer the service as an important part of their employment package.
Teladoc has over 50 million members and 12,000 clients, serving over 170 countries. Its network has over 55,000 medical professionals (including 3,100 licensed doctors) working across 450 subspecialties.
Since the beginning, the business has grown to collaborate with international hospitals, over 70 global insurance companies, healthcare providers, and health delivery organizations.
In 2019, the business completed 4 million virtual care visits. During the COVID-19 pandemic, that number skyrocketed. As a result, Teladoc saw a 92% jump in visits during the first quarter of 2020.
How Does Teladoc Work?
Teladoc works by connecting you with certified board physicians via its website and mobile app. Users set up an account, provide basic details and complete a medical history survey. The survey provides the information necessary for doctors to accurately diagnose you and prescribe effective medication.
Through an account, users can request a “visit”. You can do this on your own behalf or for others (if they share access to an account). You’ll have to select which state (United States users) you’ll be in during the consultation period.
Teladoc’s platform will connect you with a doctor in that area. You can arrange a consultation via video or phone call. You’ll also select the time you want the appointment and can upload photos beforehand (in the case of visual symptoms). Finally, you’ll be provided with payment options (if you’re not a paid subscriber).
Consultations are focused on non-emergency cases. If the consulting physician feels your condition is serious, they will refer you to your local ER hospital. Any prescriptions will be sent to a local pharmacy of your choice.
The cost of consults varies depending on the users’ benefit plan (more on how Teladoc makes money later).
How Does Teladoc Pay Physicians?
Teladoc physicians take a fee directly from the Teladoc service. According to Indeed.com, the average hourly rate for a physician signed up to Teladoc is around $100.
Physicians take a percentage of the consultation fee users of Teladoc pay.
Earning capacity is set by demand and physicians’ availability. There are many reports of doctors making a full-time income working exclusively with Teladoc.
Revenue growth has reached a stalemate
Teladoc reported revenues of $1.1 billion for the fiscal year that ended on December 31, 2020, representing a 98 percent increase over the same period in the previous year. Although revenue growth has continued to increase since that time, the company's revenue growth has begun to stall. While Teladoc generated $1.5 billion in revenue during the first nine months of 2021, quarterly sequential growth slowed to less than half of that amount.
The following are the sequential growth rates achieved by the company over the last three quarters: There will be an 18 percent increase from Q4 2020 to Q1 2021, an 11 percent increase from Q1 2021 to Q2 2021, and a 4 percent increase from Q2 to Q3 2021. The company's fourth-quarter revenue guidance for 2021 is $536 million to $546 million. At the midpoint, this represents another 4 percent increase in sequential quarterly growth. If Teladoc achieves its sales targets, the company will surpass $2.0 billion in total sales for the year, representing an increase of more than 80% over the previous year.
At first glance, a growth-oriented investor might be put off by a company that is experiencing declining sequential revenue growth. Looking at the key performance indicators, We believe that a slowing in revenue growth is to be expected in the near term, however. Teladoc experienced a 41 percent increase in paid membership for the fiscal year that ended on December 31, 2020, as well as a 156 percent increase in total visits. Especially for a company that was unquestionably fueled by the pandemic, this level of growth is unsustainable.
According to the company's projections, paid membership will grow by only 2 percent in 2021 and total visits will grow by approximately 40 percent in the same year. It may become more apparent that Teladoc's business is returning to pre-pandemic levels of growth if we consider the context in which its business experienced such an influx in 2020. Despite the fact that the company's growth profile is slowing, We do not believe that the company's future potential is at risk. The declining share price has been viewed positively by some large institutional investors, who see it as a long-term buying opportunity.
Institutional investors buy the dip when it occurs
Cathie Wood, a well-known technology investor, has been buying Teladoc stock since the company reported its third-quarter earnings in late October. In each of the following ETFs managed by Wood, Teladoc has a top-10 position: the ARK Innovation ETF (NYSEMKT:ARKK), the ARK Next Generation Internet ETF (NYSEMKT:ARKW), the ARK Fintech Innovation ETF (NYSEMKT:ARKF), and the ARK Genomic Revolution ETF (NYSEMKT:ARKG). Teladoc is the most valuable holding in the ARK Genomic Revolution fund, with a market capitalization of $1 billion.
Each of these funds has outperformed the S&P 500 over a five-year time horizon since their inception, despite the fact that technology stocks are expected to contract in the coming year (2021).
When it comes to investing, Cathie Wood's investment acumen and ability to identify innovative leaders across a wide range of industries impress me as a prospective investor. It's for this reason that I'm encouraged that Wood has been adding shares of Teladoc to her overall portfolio and taking advantage of the company's declining stock price as a buying opportunity.
It's important to remember that we shouldn't always follow the movements of larger institutional investors, especially when it comes to stocks. Wood's thesis about Teladoc, on the other hand, is based on artificial intelligence and the growing importance of data.
Specifically, she has referred to Teladoc's acquisition of Livongo, which is scheduled to close in October 2020, as a savvy business combination because the pro forma entity now serves both the acute and chronic sides of the health spectrum, giving Teladoc the opportunity to amass even more data from its growing membership base. Teladoc should be able to use that data to improve existing products and services while also developing new, innovative products and services as it reshapes the healthcare industry.
So, what do you do now?
As an investor, We believe it is critical to take a step back. Teladoc bridges the gap between two industries that are constantly innovating: technology and medicine. When we look at the overall sales picture, the year-over-year revenue growth of 80 percent is still quite impressive. This expansion has been fueled by an increase in the number of members and the total number of virtual consultations provided by the company.
it is reasonable to conclude that the company's rate of growth during the year 2020 was unsustainable. But it was because of this expansion that Teladoc was able to capitalize on the impact that the pandemic had on markets and specific industries, which culminated in the acquisition of Livongo by the company in 2017.
Despite the fact that the benefits of this acquisition have not yet resulted in growth comparable to that experienced during the COVID era, We are optimistic about the future potential of the company. Because investors such as Cathie Wood are committed to investing in Teladoc for the long term, We feel more confident in my decision to buy at these bargain prices. If you are looking for exposure to innovation and the future of healthcare, Teladoc may be worth considering for inclusion in your portfolio.
