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Better Buy: Teladoc vs. Amwell

By Zhiyuan Sun - Jan 6, 2021 at 7:40AM

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The two telemedicine companies are witnessing exponential sales growth. Which one is the better buy?

The COVID-19 pandemic has fundamentally changed how Americans view online health consultations. Before it struck, only 11% of patients were comfortable seeking virtual care from their physician. That number has now risen to nearly 76%.

The change in patient behavior has also sparked massive investor interest in telemedicine services. Two companies operating in this space, Teladoc Health ( TDOC -4.75% ) and American Well ( AMWL -6.76% ), represent the best bets in this fledgling industry to capitalize on a growing trend. Which of the two is the better buy? 

Man and child in online consultation with physician.

Image source: Getty Images.

The case for Amwell 

Amwell was recently ranked first nationally in customer satisfaction for telehealth services by consumer research company J.D. Power. In the 12 months ending Sep. 2020, Amwell added a stunning 56,000 new active providers to its platform, bringing its total number of doctors to over 62,000. 

Third quarter revenue (ended Sep. 30) increased by 80% year over year to $62.6 million. In the same period, total number of visits skyrocketed to 1.414 million, representing a 450% growth from the year-ago quarter. For the whole of 2020, management expects $239 million in sales, a solid 60% increase from 2019 levels.

On the profitability front, Amwell's operating, non-cash losses (EBITDA) will likely widen from $72.7 million in 2019 to $105 million in 2020. With nearly $1.1 billion in cash and equivalents and no debt on the books, the telehealth service provider should be able to cushion losses for the time being and continue investing in customer acquisition.

The case for Teladoc 

Teladoc has a much heavier international presence as opposed to Amwell's near-exclusive focus on the U.S. market. In Q3 2020, the company had 445,000 visits outside the U.S., representing an 83% increase from Q3 2019. In addition, the company recently began integrating its telemedicine platform outside of just simple consultations, for the treatment of chronic conditions via data science. 

Last October, Teladoc closed its $18.5 billion acquisition of digital diabetes management firm Livongo Health. Teladoc expects the deal to add a further $351 million to its projected $988 million in sales this year, as well as $37 million to its adjusted EBITDA of $89 million. By 2023, Teladoc projects the combined entity can bring in up to nearly $3.5 billion in sales and $591 million in adjusted EBITDA.

Like Amwell, Teladoc is also well-renowned, with over 90% customer satisfaction for its services. In Q3 2020, the company's revenue increased by a stunning 109% year over year to $288.8 million. Simultaneously, the number of total visits increased by 206% compared to Q3 2019, to 2.8 million. There are now 51.5 million paid members on Teladoc's platform, up from 35 million a year ago.

Which one is the better choice? 

Despite all their potential, both telemedicine stocks come at a steep price. For starters, Teladoc is trading at 17.6 times sales and 13 times net assets. Meanwhile, Amwell has a valuation of 24.9 times sales and 4.7 times book value.

At the end of the day, I would argue Teladoc is the better of the two. This company simply has a lot more consolidation in serving as a single drop off-site for all online medical needs. Its international traction also synergizes well with its highly scalable business model. If you're an investor looking for healthcare stocks with high quality and above-average growth, definitely consider adding Teladoc to your portfolio.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
$92.01 (-4.75%) $-4.59
American Well Corporation Stock Quote
American Well Corporation
$5.93 (-6.76%) $0.43

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