Shares of Teladoc Health (TDOC -0.87%) are up around 170% this year, blowing past the S&P 500 and its flat performance thus far. The company's coming off a strong first quarter that ended in late March when demand for its virtual healthcare services was spiking during the start of the COVID-19 pandemic in the U.S. Visits have been at record levels and soaring sales are attracting many investors to buy up shares of this hot healthcare stock.
However, for the stock to continue on its upward trajectory, Teladoc needs to keep that impressive growth going in the second quarter. And to do that, it has to post strong numbers. Here are three figures investors should be looking for when the New York-based telehealth company releases its second-quarter results on Wednesday.
1. The top line
Teladoc has multiple ways of generating revenue including from corporate clients that sign up their employees, dependents, or beneficiaries through a per-member-per-month subscription access fee. It also earns revenue per visit and patients without health insurance can pay $75 to see a doctor virtually.
For a growth stock like Teladoc, there's not going to be a more important number than what its sales grew by in Q2. During the first quarter, revenue was up 41% year over year, hitting $180.8 million. When Teladoc released those results on April 29, it said it was expecting Q2 sales to come in between $215 million and $225 million -- a year ago in Q2 it posted revenue of $130.3 million. This means Teladoc expects sales growth of 65% to 73% -- a hefty increase from the first quarter. Anything less than that could send the healthcare stock reeling as it is sitting at an $18 billion valuation and trades at 26 times its sales. A year ago, its market cap was less than $5 billion and the company's shares were trading at just 10 times revenue, so there's plenty of room to fall.
2. Total visits
Another key number that investors should scrutinize is how many (virtual) visits there were in Q2. This is important to determine how popular Teladoc's services are and whether the company's likely to continue growing at a high rate. And there's no better way to gauge how popular Teladoc's services are than by how many people are using them, especially amid the pandemic when people are hesitant to go in-person to a doctor's office. It'll also be a good test to see if first-time users are coming back for more visits.
In the first quarter, the number of visits increased by a whopping 92% to just over 2 million. Teladoc's expecting to build on that growth and for Q2 is forecasting between 2.3 million and 2.4 million visits -- up to a 20% quarter-over-quarter increase from Q1's numbers. If the company hits its sales projections it's likely that Teladoc will also reach the total visits that it's expecting for the quarter.
3. The bottom line
Teladoc has reported a loss every year that it's been in operation. Despite rising sales numbers, the virtual healthcare service provider has languished in the red. And while Teladoc will probably do OK in Q2 if its sales and visit numbers meet expectations, investors shouldn't neglect the importance of the bottom line, especially amid a pandemic that's already driven many companies out of business. The company is expecting EBITDA in Q2 to come in between negative $1 million and a positive $3 million. That would be an improvement from the $11.3 million EBITDA loss Teladoc incurred in Q1.
In Q1, Teladoc incurred a net loss of $29.6 billion, which was a slight improvement from the $30.2 million loss it reported in the prior-year period. On a per-share basis, its quarterly net loss was $0.40. The company expects that to improve in Q2 and is projecting a net loss per share between $0.28 and $0.23. In the last 10 quarters, the closest Teladoc's come to breakeven was a per-share loss of $0.26 in the fourth quarter of 2019.
For investors to feel optimistic about the company's long-term prospects, Teladoc needs to show improvement in its bottom line.
Is the stock a buy today?
Teladoc has done really well during the early stages of the pandemic. With no end in sight to the COVID-19 pandemic, most people are still staying home as much as they can and opting for virtual visits when possible. It's very likely the company will have yet another impressive quarter when it releases its Q2 results this week as demand for its services is only increasing.
However, this isn't a stock to buy and forget about over the long term because competition will probably be creeping in, which will take a bite from Teladoc's growth rate. But there's still time before investors need to worry about that given the network of doctors and clients it has developed. And being compliant with HIPAA gives Teladoc an advantage over any video communications companies that might want to encroach on its telehealth empire.
Ultimately, its high valuation is what makes investing in Teladoc's stock a bit of a risky proposition over the long haul. Unless the company can demonstrate a sustainable way that it can ward off competitors, it's not a stock I'd consider investing in right now even amid its strong results.