When a stock goes up or down a lot in a short amount of time, it's easy to think something has changed. That volatility can often be a distraction. The most successful investors are able to focus on whether the company has a clear path to making money and how well that journey is going.
After a huge gain in 2020, shares of Teladoc Health (TDOC -2.40%) are down almost 40% in two months. However, management continues to articulate plans to dominate the virtual healthcare industry and deliver numbers to prove it. As the decline scares people off, now could be a great time to buy the stock.
Image source: Getty Images.
The strategy is clear
Teladoc has not only told investors about its strategy, it has made it abundantly clear through its acquisitions. The company aims to transform the healthcare experience to achieve more convenience, as well as better outcomes and value. It plans to position virtual care as the first place people go to manage their health.
By becoming the portal to the healthcare system, and offering services for any path the journey takes, Teladoc envisions a new whole-person healthcare system with itself as the entry point. Reviewing the company's purchases since going public, its desire to expand across geographies and the healthcare journey becomes obvious.
| Date | Acquisition | What Teladoc gained |
|---|---|---|
| Jan. 2015 | Betterhelp | Licensed therapists |
| June 2015 | Stat Health Services | 2/47 visits, ER doctors, prescriptions |
|
July 2016 |
HealthiestYou |
Compare ratings, reviews and prescription pricing |
|
July 2017 |
Best Doctors |
Second opinions, 40% of sales were international |
|
May 2018 |
Advance Medical |
300 multinational corporations, 100% of sales outside the U.S. |
|
April 2019 |
MedecinDirect |
Virtual care in France |
|
Jan. 2020 |
InTouch Health |
Consumer, specialty, and emergency visits for hospitals and health systems |
|
Oct. 2020 |
Livongo |
Leader in digital chronic condition management |
Data source: Teladoc Health.
The continuity of care, convenience, and less office-driven approach is designed to achieve what the Institute for Healthcare Improvement has deemed the triple aim: improving both the patient experience and healthy outcomes while reducing cost.
The company has been executing
The strategy of growth by acquisition has been working. Since 2016, revenue has grown from $123 million to $1.1 billion, with about $2 billion projected for 2021. Membership has grown from 17.5 million to 52 million over the same span.
Although management is projecting membership to be flat this year, the addition of Livongo has begun to juice the per member per month (PMPM) price customers are paying. CEO Jason Gorevic attributed more than half of the jump in PMPM in this past fourth quarter to the addition of Livongo. It's great news, but the company had been adding services and getting higher pricing for years.
| Fiscal Q4 | Average PMPM |
|---|---|
|
2020 |
$1.76 |
|
2019 |
$1.19* |
|
2018 |
$1.16 |
|
2017 |
$0.95 |
|
2016 |
$0.59 |
|
2015 |
$0.48 |
Data source: Teladoc Health; *$0.91 when including a large new customer
Management has pointed to the multi-product sales, and subsequent per-member pricing, as the best indication of how well its strategy is working. So far, so good. Over the last three years, the percentage of clients with more than one product has grown from 9% to 43%. Livongo is already proving it will bolster that.
There are massive industry tailwinds
The shifting reimbursement landscape in healthcare is pushing all providers toward finding a cheaper way to produce the best outcomes. Nowadays, the best companies are using data to determine what customers want and need and get the best results. Teladoc is doing both.
By enveloping recurring services like diabetes management and therapy, along with data from wearable devices like an Apple Watch, Fitbit, or Oura sleep ring, the company strengthens its ability to predict the needs of its members. That value and high customer satisfaction make the offering extremely sticky. More plainly, clients are very unlikely to stop paying for something like diabetes management once it's lowering total costs and demonstrating high satisfaction among members.
For investors, the success of Teladoc may depend on how quickly the rest of the healthcare industry can adapt to a better, cheaper way to take care of patients. It isn't an industry known for flexibility or customer focus.
However, there were some regulatory and reimbursement changes made during the pandemic to make virtual care more accessible. If those are made permanent, healthcare systems and hospitals will embrace the technology more enthusiastically. The continued move away from traditional fee-for-service reimbursement models will also accelerate adoption.
These trends seem inevitable, and even if they occur slowly, they are happening. Although the stock is down nearly 40% over the past two months, it is up 300% since the Livongo acquisition was announced in August 2019. For investors who plan to hold for at least three to five years, shares of Teladoc are a great way to invest in the future of medicine. The biggest unknown is how quickly that future will arrive. Either way, Teladoc should be a winner over the long term.
