Teladoc Health's (TDOC -0.07%) first-quarter earnings report left investors with mixed emotions last week. The company's new chronic care segment added a lot of new members during the first three months of 2021, but significantly less than a year ago.

While the Livongo acquisition that closed last October isn't proceeding as well as investors hoped, the stock didn't collapse. That's because a much older investment in mental health services is blowing past previous expectations.

Happy doctor on a telehealth call.

Image source: Getty Images.

Growing pains?

Last fall, Teladoc Health made a huge bet on Livongo and its suite of services that help patients manage diabetes, hypertension, and other chronic conditions. During the first quarter of 2020, Livongo added 105,000 thousand members to its flagship diabetes management program.

In the first quarter of 2021, Teladoc Health's entire chronic care operation added just 72,000 members. This was a lot less than analysts were expecting, but combining operations created by different organizations is never easy. 

BetterHelp to the rescue

It's been more than six years since Teladoc Health acquired BetterHelp and it's growing faster than ever. In 2020, Teladoc reported a 500% increase in mental health visits through its business-to-business channel.

During Teladoc's first-quarter earnings call, CEO Jason Gorevic said the company's mental health services are on track to more than double last year's performance. Strong performance by Teladoc's BetterHelp segment allowed the company to report revenue and earnings that beat Wall Street analyst estimates.

Overall, Teladoc performed extremely well in the first quarter. Total revenue jumped 151% higher and on the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged to $57 million from just $11 million in the previous year period. 

Looking ahead

The stock market was able to look past what appears to be poor execution of the merger with Livongo because its mental health service is crushing it right now. Since chronic care management is a crucial part of Teladoc's long-term strategy, the honeymoon won't last long.

Teladoc shares are still trading at around 99 times the company's adjusted EBITDA estimate for 2021. With expectations so high another weak quarter from the chronic care department could flatten the stock. 

That's because Teladoc Health isn't the only major player in the telehealth space, and any loss of market share over the next few years will be extremely difficult to recover. In April, Cigna (CI 0.30%) acquired MDLive, one of the largest privately held telehealth service providers in the U.S. Recently, Amazon (AMZN 2.08%) expanded its Amazon Care service to U.S. employers and more than half a million of its own employees.

Stay patient

America's healthcare system was raised to tackle acute issues while demand for chronic care services grew unchecked for decades. In 2018, the Centers for Disease Control (CDC) found a slight majority of U.S. adults have at least one chronic condition. While there are other players in the telehealth space, Teladoc Health is still the company best positioned to fill this unmet need.

The first full quarter following the acquisition of Livongo has been disappointing on the chronic care front, but it's still too early to call the ambitious merger a failure. After all, the company credits the extension of Livongo's digital capabilities to BetterHelp's therapists for some of the mental health operation's recent success.