When Teladoc Health (NYSE:TDOC) announced its financial results late last month, the results were eye-popping. The company reported revenue that grew 109% year over year. Excluding one-time charges, Teladoc cut is net loss by half. Yet in the wake of these seemingly impressive results, the stock sold off more than 19% in the days that followed.
In this Earnings Review that aired on Fool Live on Oct. 30, Fool.com contributors Danny Vena, Daniel Sparks, and Jason Hall discuss the market's reaction to Teladoc's earnings and the close of its merger with Livongo Health -- and why the market got it wrong.
Jason Hall: "Which tech stock did the market get most wrong in its reaction to earnings?" Do either of you have an immediate reaction to that, or do you want to think about it a little bit more?
Danny Vena: I have an immediate reaction.
Hall: Danny, go ahead.
Vena [laughs]: You know, the last time that I looked, Teladoc's stock was down about 11%. Part of that was in reaction to earnings and part of it was in reaction to the closed merger with Livongo Health. But listen, both of these companies put up triple-digit revenue gains year over year. That's probably the worst disconnect that I've seen. Now, that said, Livongo was up over 400% so far this year and Teladoc was up over 100%. So that's probably helping drive that. The valuations may have gotten a little disconnected from reality, but yeah, I think they got that wrong.
Hall: I'm going to put in the chat here, I'm going to put in Teladoc, Livongo, and put in the ticker just for Teladoc because the merger has closed so it's just going to be that one ticker going forward. Daniel Sparks. Any thoughts on that?
Daniel Sparks: I'd have to agree on that one. Teladoc and Livongo Health have just shown how critical they are to this environment. But what's interesting to me is when you go back and look at both companies before the coronavirus pandemic. I don't think Teladoc was in the triple digits, but Livongo Health clearly was.
Teladoc was firing on all cylinders with tons of secular tailwinds pushing this company, from the regulatory environment to just the overall demand for a way to scale operations across hospitals and caregivers. Livongo Health has their tailwinds, that's not a good way to put it, but the unfortunate reality of chronic disease in the United States is something that isn't going away, and Livongo Health has positioned itself very strategically to grab market share in that area.
It is interesting. I think that these are incredible companies that have really grown on me despite the fact they're trading higher this year, of course, treaded water recently and then fell even in the last few days. Now, I'm relooking at these companies. I'm a small shareholder, I was, of Livongo Health. Literally, I think it was just like a small start-up position, but now, I'm considering maybe adding to that.