Teladoc Health (TDOC 0.20%) is the leader of telemedicine in the U.S. With its massive network of board-certified clinicians, Teladoc aims to supply health insurance companies and large employers with easy and remote access to doctors.
Before the coronavirus pandemic, Teladoc's stock was steadily appreciating in value alongside its revenues and its customer base, with an impressive 41% year-over-year revenue growth in the first quarter of 2020 and trailing 12-month revenues of $605.53 million. Amid a deluge of demand prompted by the pandemic's forced transition away from in-person healthcare services, smart healthcare investors won't want to miss the opportunity that Teladoc presents.
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With little competition on the horizon, Teladoc grows unchecked
For everything from skin issues to mental health crises, Teladoc has resources in place to get patients the care they need. Once patients are enrolled in their health insurance or their employer's Teladoc coverage, getting a consultation with a doctor is only a web form and a phone call away.
The company's doctors can use video calls to investigate symptoms, prescribe medical tests and medications, and make referrals to specialists or emergency departments. This means that Teladoc is an excellent supplemental service for patients whose primary care physicians are too busy for same-day appointments. It also means that Teladoc is positioned to capture some of the market share held by primary care practices and urgent care facilities.
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Customers everywhere have flocked to Teladoc's well-polished package of services. The company's latest earnings report states that its subscriber base swelled 60.8% year-over-year, alongside the total number of virtual visits by subscribers increasing by 92%. In the same period, existing customers utilized Teladoc's services at a rate of 13.36% per year compared to 2019's 11%. While this increase is modest, keep in mind that it doesn't account for the majority of the expected increase in utilization prompted by the pandemic.
Importantly, with a profit margin of -16.24% and a -9.82% return on equity, Teladoc isn't a profitable company yet. Furthermore, Teladoc's debt of $482.49 million appears quite substantial when compared to its $510.78 million in cash on hand and its $31.44 million in trailing 12-month operating cash flow. To bridge the gap between its revenues and its expenses for the next few years while it works toward profitability, in May the company issued $850 million in convertible senior notes to private institutional buyers. The notes are due in 2027, leaving Teladoc with plenty of time to grow and also to increase the efficiency of its service operations.
Efficiency aside, there aren't many competitors threatening Teladoc's market share. At present, Teladoc's competition includes other telehealth providers like Livongo Health (LVGO +0.00%) and a myriad of smaller private telehealth companies like Zocdoc and Buoy Health. Compared to Livongo's market cap of $6.62 billion, Teladoc is more than twice as large, with a market cap of $15.07 billion. Unlike Teladoc, Livongo emphasizes digitally connected medical devices as part of its telehealth service, which might be a competitive advantage. Livongo's focus on telehealth for patients with chronic diseases like diabetes is significantly narrower in scope than Teladoc's broad offerings, so it does not pose a major threat to Teladoc's expansion for the time being.
Expect Teladoc to keep expanding, and its stock to go higher
Teladoc seems to be fated for continued rapid growth over the next year solely due to the pandemic. But, it would likely be growing steadily even if the pandemic hadn't happened because of how effectively its service connects patients to clinicians on short notice.
If Teladoc struggles to become profitable over the next few years due to higher service utilization caused by the new systemic emphasis on telehealth, its rate of growth will likely ebb. On the other hand, there isn't any indication that the company has made a major attempt to increase the efficiency of its services yet, so Teladoc's leadership likely plans to focus on growth for a bit longer.
Teladoc's next earnings report will elucidate more clearly how much the company has benefited from the pandemic-prompted surge in demand. In the meantime, Teladoc's rapid growth makes it a hot stock worth purchasing today.
