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5 Reasons Why Teladoc Has a Bright Future

By Saket Jhajharia – May 2, 2020 at 6:10AM

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The company's impressive momentum is reflected in its strong performance in the first quarter of 2020.

Teladoc Health (TDOC 0.80%) has been on fire over the past year. The telehealth services provider has seen its stock surge by about 200% during this period, crushing the S&P 500's 3% decline over the same time frame.

Teladoc's impressive momentum, which is reflected in its strong first-quarter 2020 performance, is largely thanks to strong demand for its services following the COVID-19 outbreak.

Here's a quick look at some of the key metrics in Teladoc's results that help explain its strong growth.

Cartoon illustrates doctor reaching through a monitor to listen to a dude's heart.

Image Source: Getty Images.

1. Revenue increased by 41% 

Teladoc's reported first-quarter 2020 total revenue was up 41% to $180.8 million year-over-year. Growth was largely thanks to fee increases -- subscription fees went up by 29% year over year, while visit fees skyrocketed by 93% year over year.

The first quarter saw growth accelerating compared with fiscal 2019, when revenue jumped 32% compared with full-year 2018. 

2. Growth in number of members and visits

In the first quarter of 2020, Teladoc saw a 61% increase in paid memberships, to 43 million. Similarly, telehealth visits were through the roof, up 92% year over year to 2 million. This means that visits in the first three months of this year made up close to 50% of 2019's entire total of 4.1 million.

These numbers show that demand for telehealth services is on the rise. This could be because people who have tried these services are returning to them and suggesting them to friends and family because of their convenience. Management noted in the quarterly report that "new registrations increased 125% over the prior year, outpacing member growth as the outbreak of COVID-19 is driving awareness of virtual care among consumers."

The COVID-19 pandemic has also led to a significant increase in telehealth visits. The company mentioned in a press release on March 13 that "visit demand [had been] consistent with peak flu volumes, but on Wednesday [accelerated] to as much as 15,000 visits requested per day." Given that peak flu volume was likely about 2,000 visits daily, this indicates that daily visits have increased by more than sevenfold during the COVID-19 period.

That number has continued to increase, currently reaching about 20,000 visits per day based on preliminary metrics the company released April 14. This is an increase of almost 100% compared with 2019's average. 

3. Free cash flow turned positive in 2019 

Teladoc reported negative free cash flow for the first quarters of both 2020 and 2019. However, for all of fiscal 2019, Teladoc reported positive free cash flow (cash from operations minus capital expenditures) coming in at $26.3 million.

Turning cash-flow positive is an important milestone, as it indicates that a company can generate cash from its operations and does not need to raise capital to keep itself going. Being cash-flow positive is one metric high up on my list when I am analyzing companies to invest in.

4. Expect fiscal 2020 revenue of at least $800 million

In the Q1 report, management guided for a strong fiscal 2020, predicting annual revenue of between $800 million and $825 million. At the midpoint, this would represent growth of 46.4% year-over-year, an acceleration from the growth seen in fiscal 2019.

The increase in guidance was thanks to the strong demand management sees for Teladoc's services, and this momentum should continue in the near term as social distancing makes people prefer telehealth services to in-person visits. In the longer term, as people get more comfortable using telehealth services, repeat visits are highly probable. 

5. A bright future ahead

The telehealth market in general is set to enjoy strong growth in the future.

A report by market researchers ReAnIn noted that the global telehealth market is set to grow from $25.1 billion in 2018 to $63 billion in 2025. This indicates a compounded annual growth rate (CAGR) of 14.2%. While not all of this growth will come from home-based services like the one Telehealth provides, much of it likely will. 

Verdict

Overall, it's easy to see why healthcare investors have been buying up Teladoc's stock over the past 12 months. Most recently, the COVID-19 outbreak has brought a spike in demand for its services, and a positive experience now might result in repeat visits in the future. In the end, the coronavirus outbreak might mean quicker adoption of telehealth services overall -- which is beneficial for Teladoc.

Based on management's guidance for 46% revenue growth in fiscal 2020, Teladoc expects the robust momentum to continue in the coming quarters.

Saket Jhajharia owns shares of Teladoc Health. The Motley Fool owns shares of and recommends Teladoc Health. The Motley Fool has a disclosure policy.

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