Sometimes a special stock can achieve returns that enable life-changing events, funding your kid's education, paying off your house, or making that dream trip a reality. There's no magic formula for finding that investment, but choosing companies that are leaders in their industries, riding strong tailwinds, and have a strong moat can tip the odds in your favor. Teladoc Health (TDOC 3.57%), a company that enables patients to visit healthcare professionals virtually, just might be that one stock that brings life-changing returns to your portfolio.
The business of virtual healthcare
Teladoc is the industry leader in telemedicine partnering, with over 50,000 clinicians globally, and serves patients in over forty languages and 175 countries. It makes money by contracting with businesses and healthcare plans to provide its services via subscription fees (usually charged per-member, per-month) and also has a direct-to-consumer pay-per-visit service. Subscription fees made up 84% of revenues last year and grew 32% over the previous year, along with total visits growing 57% to 4.1 million. Overall annual revenues have grown at an amazing 55% annually from 2015 through 2019.
Employers choose Teladoc as a complement to benefit offerings because it helps them save money on healthcare. For an idea of what's possible, the company shared its own numbers on its health plan in its recent analyst day presentation. It has seen an overall 35% reduction in in-person doctor visits and, most importantly, a 28% reduction in overall healthcare costs. The engagement in the platform is probably higher than other employers would see, but with healthcare costs continuing to rise, Teladoc provides a strong incentive for employers to sign on.
In addition to the benefits of saving employers money, the company has a number of tailwinds aiding its growth.
Telehealth has incredible tailwinds
With the help of medical technology and improved healthcare, people are living longer. In the U.S., that means the number of people over 65 will outnumber the population of children for the first time by 2035. It's no surprise that as we get older, we utilize more of the healthcare system and are often less mobile, which makes getting to the doctor's office a challenge. Even though many situations require seeing a healthcare professional in person, follow-up visits, consultations, or addressing non-critical illnesses can be done virtually. This is one trend that will help it grow in the years ahead, but there's another that could drive huge growth this year.
Teladoc has seen an incredible uptick in usage during the COVID-19 crisis. Chief Medical Officer Lewis Levy explained the benefits its platform brings during a pandemic in a recent analyst call. First, patients can get access to medical care without traveling and potentially infecting others. Second, the virtual visit protects healthcare workers, and third, it reduces the demand for personal protective equipment (which is currently in short supply). As patients and medical establishments try the platform for the first time, it's likely that these new users could drive additional growth long after the crisis is over.
But the company isn't just relying on these tailwinds. It's been aggressively acquiring to secure its virtual healthcare leadership position.
Building a moat through acquisitions
In the last five years, Teladoc has spent over $1 billion in acquiring 10 companies. These acquisitions broaden its offerings into mental health (Better Health), expert medical consultation (Best Doctors), home healthcare (Advance Medical), and wellness (Healthiest You). But its biggest purchase was buying InTouch Health for $600 million in cash and stock, which was announced in January. InTouch expands its reach into the hospital setting and allows the company to serve patients virtually from the hospital to the home.
Having this broad array of services gives the company a tremendous competitive moat. It's partnered with over 50 U.S. health plans (and 70 globally), used in 4,500 medical care locations, and powering the telehealth efforts for pharmacy giant CVS Health. This strength of offerings makes it easy for customers to choose Teladoc and stick with it, but what about investors?
For investors with an eye to what's possible
Investors may think they missed the boat with this stock up over 70% year to date, and up over 350% since it went public in 2015. But with the telehealth market expected to exceed $130 billion by 2025, it has plenty of room to run. Its proven model and synergistic acquisitions give the company confidence to project 2020 revenues to be $703 million at its midpoint of guidance, a 27% improvement from last year. Over the next three to five years it expects top-line organic growth in the range of 20% to 30% and adjusted EBITDA improvements of 200 to 300 basis points annually.
Investors would do well to buy into this healthcare stock now and build your position opportunistically. With patience and time, this stock could bring you life-changing returns.