Proclaiming Teladoc Health (TDOC -2.48%) the Amazon of online health might seem strange at first. After all, Amazon launched Amazon Care in 2019 to offer health services for employees. The company has also purchased an online pharmacy. Given those moves, one might assume that Amazon itself will become the Amazon of online health.
However, Teladoc entered this industry years ahead of Amazon. While a large, well-resourced tech giant could become a competitive threat, Teladoc's focus on healthcare and its market position could still make it the predominant ecosystem in the healthcare realm.
Teladoc has brought disruption, investor gains
Perhaps no industry needs disruption more than healthcare. As of 2018, healthcare spending averaged $11,172 per person in the U.S., accounting for 17.7% of GDP. Complaints about the inefficiencies in the U.S. healthcare system continue to mount. A lack of price transparency also has frustrated patients.
Teladoc has disrupted some parts of the healthcare system with its service, which allows patients to get a virtual online appointment with a doctor 24 hours a day, seven days per week. The company also tells its patients what the consultation will cost and allows doctors to transmit prescriptions to a pharmacy if needed. While a virtual appointment is not appropriate for every issue, it enables patients to take care of some healthcare needs more quickly.
Teladoc Health gained considerable traction during the recent COVID-19 pandemic. Not only could patients talk to a doctor quickly, but they could also speak to a health professional without the risks of exposing themselves to coronavirus in an office waiting room. Investors saw the potential of this healthcare stock quickly. Teladoc stock has risen by more than 100% year-to-date as a result.
Much like Amazon in its early days, Teladoc Health has seen massive growth amid continuing losses. In its most recent quarter, total revenue increased by 41%. The company also slightly reduced its net losses, reporting $0.40 per share in losses compared with a negative income of $0.43 per share in the same quarter last year. Also, the profit picture continues to improve. As a result, analysts project that the company will turn profitable in 2022.
Moreover, this quarter ended March 31, a time when pandemic-related lockdowns had just begun. For this reason, stockholders probably do not yet know the full extent to which Teladoc benefited from the pandemic. However, investors have taken notice of the value proposition of Teladoc's service. Due in large part to the 2020 run-up in the stock price, Teladoc stock now trades at approximately 20 times sales. The is nearly 10 times the average price-to-sales (P/S) ratio for the S&P 500, which is about 2.1.
The Amazon threat
Admittedly, the threat of Amazon entering this industry rightly creates concerns. Amazon is a profitable company with a market cap of more than $1.2 trillion. At $13 billion, Teladoc is a small fraction of Amazon's size. Moreover, the elevated stock price could come to reflect these worries in time.
Amazon has not pushed everyone aside. Both Costco and Walmart have successfully fought back against the e-giant. Moreover, in the cloud world, Microsoft continues to gain market share on Amazon.
Furthermore, those concerned about Teladoc's much smaller size may also have a reason for hope. Some might recall Intuit's success against Microsoft in the 1990s in the financial software realm. Despite Microsoft's much larger size, customers spurned the tech giant's offerings in favor of Intuit's products. Intuit succeeded by out-marketing Microsoft -- and, in the minds of many, producing a superior product.
This is a relevant point, because the only thing more intimate than money is healthcare. While consumers might trust Amazon to provide material goods or cloud services, investors have to wonder whether allowing Amazon to choose their doctor could become too personal for some.
Moreover, while Amazon's service serves only metro Seattle, Teladoc serves 175 countries and provides service in more than 40 languages. Furthermore, its acquisition of medical consultation company Best Doctors in 2017 increased the complexity of the health issues the company could address. Mustering the resources to replicate Teladoc's offerings could prove difficult, even for a company with Amazon's vast resources.
Teladoc's ecosystem has played a critical role in changing healthcare. This became even more apparent as patients turned to the company during the COVID-19 pandemic.
Certainly, Teladoc's high stock price and the possible threat from Amazon rightly make investors nervous. However, given Teladoc's role in providing telehealth services, the company could succeed despite these threats.