While the COVID-19 health scare has done a lot of damage to real-world stocks, including many healthcare companies, one major sector has emerged unscathed -- the virtual economy. Companies with their primary business online are doing quite well in this environment. While the physical world is largely shut down, the virtual world is still zooming forward.
While the internet has been transforming our economy for several decades, the creative disruption of traditional healthcare has just begun. One of the big internet health providers is Teladoc Health (NYSE:TDOC), up 108% in 2020. Another up-and-comer is Livongo Health (NASDAQ:LVGO), up 118% so far this year. Let's explore how these two companies are using the internet to radically change healthcare.
Virtual healthcare is here
Imagine you have a medical issue at 10:00 p.m. It's not serious enough for the emergency room, but you'd really like to speak with a doctor. Doctors' offices are closed at that hour, but in the virtual world, you can seek medical attention 24/7.
That's the promise of Teladoc Health. You can log onto the company's website and speak with a doctor within minutes. As long as you have internet access, you can find medical attention from anywhere, at any time. Teladoc is like the largest hospital in the world -- a virtual hospital, available to anybody with a smartphone.
Not surprisingly, Teladoc is seeing remarkable growth during COVID-19. In the middle of March, the company reported that it was seeing 15,000 patient visits every day, and 100,000 visits a week. This was a dramatic increase in the early days of the COVID-19 health scare. Virtual consultations spiked 50% week over week.
This health crisis is helping Teladoc cross the chasm from the early adopters of a new product or service to the early majority. Bridging the gap is an important leap for companies offering something new to the world. While early adopters are quite willing to try something new, like virtual healthcare, what investors really want is for this new thing to become widespread in society. That's what's starting to happen now.
Is Zoom a threat to Teladoc?
2020 is the breakout year for virtual gatherings with everybody using Zoom Video Communications (NASDAQ:ZM) to meet with co-workers and loved ones alike during this pandemic. While Zoom is attempting to compete with Teladoc with its Zoom for Healthcare offering, Teladoc has serious advantages including the size of its doctor network (over 50,000 doctors are on the Teladoc platform) and the fact that it was built from the ground up for healthcare communications. Zoom's privacy issues make its attempt to provide virtual healthcare a non-starter.
Zoom's interest in entering the virtual healthcare market just affirms how big that market opportunity is, and how valuable Teladoc might be one day. Teladoc estimates that 1.1 billion people are possible users of virtual healthcare around the world.
Right now it's an internet land grab, and as the first mover, Teladoc has major mindshare and networking advantages over all its competitors. At the end of 2019, Teladoc had 36 million paid subscribers. The company added six million subscribers in the first quarter of 2020 and will add another six million in the second quarter. At that rate of growth, it will be next to impossible for anybody to replace this top dog.
Helping patients with digital assistance
While Teladoc is transforming doctor-patient communications, Livongo Health is using the internet to improve healthcare in another way. The company specializes in serving patients with chronic illnesses, like diabetes or hypertension.
Livongo works like a digital assistant or health coach. Its messaging platform helps users stay on track in managing their conditions. For instance, the company might nudge you with the following message: "An LDL cholesterol level less than 100 mg/dL decreases your chances of heart disease. Have you had your cholesterol checked in the past 6 months?"
The company tracks your health data, and your service becomes more personalized over time. Livongo sends its diabetes patients free two-way cellular glucometer strips, so the company can track the patient's progress. If your blood sugar reading is "out of bounds," either too high or too low, the company will send you texts that coach you about next steps.
The service is free for patients, paid for by their health plans. Insurers love Livongo because the service has a remarkable return on investment (ROI). In its diabetes vertical, for instance, payers are seeing in excess of three times ROI in the first year.
In a retroactive study performed by Eli Lilly, 10,000 diabetes patients were divided into Livongo users and non-users. After one year, Livongo users had a 21.9% decrease in medical spending, which translated into savings of $88 per member per month.
Patients love the service, in part because it's free for them, but also because it makes them more knowledgable about managing their condition. According to Livongo, 147 million Americans have a chronic medical condition in 2014.
The company is growing revenues at a blistering pace. Revenue growth in the most recent quarter was 115%, year over year. While Livongo is in a virtual niche, compared to Teladoc, helping patients with chronic medical conditions is nonetheless a sizable market opportunity.
For investors looking for growth stocks during this pandemic, Teladoc Health and Livongo are two obvious choices. The virtual nature of their offerings makes them ideal stocks to own during this lockdown. And yet when our world returns to normal, these healthcare companies should continue to outperform, since the internet offers obvious benefits in speed, ease of use, and optionality.