Investors are looking for the next Teladoc Health (TDOC +4.43%). By that, I mean a company with triple-digit (111%, in Teladoc's case) revenue growth that's showing up in the stock price -- Teladoc delivered a 139% gain last year -- and that promises more growth to come. Chinese telemedicine company 111 (YI 0.27%) hopes to fit that bill.
It's off to a good start. The latest earnings report shows triple-digit (113%) revenue growth. And as the first Chinese telemedicine player listed in the U.S., the stock has soared by more than 200% since the start of the year. But can 111 truly keep up that pace and ensure its position as the next telemedicine winner?
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Online services for patients and pharmacies
Let's take a closer look at this growing company. 111 offers online healthcare services, such as medical appointments and electronic prescriptions, to patients in China. The company also operates an online pharmacy for consumers and an online wholesale pharmacy for retail pharmacies, which in China are often small family businesses. 111's goal is to help those businesses from a supply chain and technology perspective.
In the third quarter ended Sept. 30, 111's network included more than 300,000 retail pharmacies. That's a 43% increase year over year. And it means 111 now is working with more than half of the retail pharmacies in China.
Also in the quarter, net revenue soared more than 112%. That's the eighth straight quarter of revenue growth. 111 has secured partnerships with more than 300 pharmaceutical companies to help them reach new pharmacies and patients (Bayer is one recent new partner). And 111 is partnering with insurers to help ensure easier healthcare access and lower prices to consumers.
The company reported a net loss of $16 million in the quarter. But 111 is working toward profitability. On the recent earnings call, CEO Junling Liu said "we will be very close to profitability" in the full year 2020. Investors should look to the upcoming fourth-quarter and full-year earnings report to see the progress in that area. 111 also predicts 81% to 90% year-over-year revenue growth for the fourth quarter.
And China's investors are showing confidence in 111. In two rounds of funding last year, 111 raised more than $142 million to further expand its business.
China's healthcare market
Of course, 111 isn't alone in the Chinese market. It faces competition from the world's biggest telemedicine company, Ping An Good Doctor. Still, China is a great place to be right now for a telehealth company.
China's healthcare market, with more than $3.5 trillion in spending, is the second largest in the world, according to a report by The South China Morning Post. At the same time, the country faces a shortage of doctors. And when it comes to patients, top-tier hospitals struggle to meet demand, while beds in other hospitals remain empty.
The Chinese government is supportive of the telehealth trend -- and that's another plus. The country in 2019 started an electronic medical insurance system allowing for health insurance coverage of telemedicine services. Overall, the global telemedicine market, at a 37% compound annual growth rate, is expected to reach $191 billion by 2025, according to research from Markets and Markets. The same report also predicts the Asia-Pacific market will post the highest growth -- and China will account for the biggest share of that market.
So, there probably will be room for a few telemedicine players in this vast playing field.
Will 111 follow Teladoc's lead?
111 clearly has room to grow. The company's market value is only $1.9 billion compared with Teladoc's $41 billion. And the company's revenue growth and partnerships, as mentioned above, look promising.
My one concern right now is the movement in share price. For instance, in one trading session this past week, the stock surged 76% at one point -- only to end the day down 9.6%. Even for long-term investors, it can be a bit unsettling to see so much volatility in one trading session without any particular news driving the movement.
In my opinion, 111 is a stock to watch -- but it isn't a buy just yet. If the share movement stabilizes and the next earnings report is as bright as the last, then it may be time to reconsider. At that point, 111 may be on the path to becoming the next Teladoc.
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.
