The coronavirus pandemic has changed various aspects of everyday life, including how we receive healthcare. As a result, telehealth company Teladoc Health (TDOC +1.86%) has been a major winner during COVID. The market is writing off Teladoc as a "COVID stock" that will fade in time, but here are three reasons why you shouldn't make that same mistake.
1. Telehealth was growing before COVID
If you haven't been paying attention in recent years, you might assume that the idea of seeing your doctor on a computer screen was an anomaly, a "temporary" measure that, as the pandemic passes, would revert to traditional doctor visits.
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But telehealth wasn't born in the pandemic; it was already a $40 billion global market in 2019 and had been growing at a 25% rate during the five years leading up to that. The pandemic certainly brought telehealth further into the spotlight, but this is a developing story, not one that ends with the coronavirus. Teladoc now estimates the virtual care market in the U.S. alone to be $250 billion.
Why is telehealth here to stay? First, telehealth is far more accessible than in-person care. The internet becomes all the infrastructure needed to connect patients with care providers. This makes a world of difference to patients in remote areas or emerging markets, where local care can be inconsistent and specialists are hard to find.
Second, telehealth is saving the healthcare system lots of money. A study showed that utilizing telehealth to divert patients away from unnecessary emergency room visits saved healthcare providers an average of $1,500 per patient encounter. Another study showed that U.S. employers could save $6 billion per year by offering telehealth technologies to their employees. As costs are pulled out of the overall healthcare system, insurers will save money, thus reducing premiums -- and the cycle repeats.
2. Teladoc isn't like other telehealth companies
The telehealth space has quickly become crowded with competitors ranging from Amwell to Amazon; telehealth has become labeled as a commodity because "anyone can hire a doctor to go on a video call with patients."
Teladoc is striving to become more than every other telehealth company. It has spent years developing and acquiring the assets needed for its vision of end-to-end patient care, which it dubs "Primary360." Teladoc acquired the mental health platform Betterhelp in 2015 and chronic health condition monitoring company Livongo in 2020. Combined with Teladoc's existing telehealth footprint of more than 51 million paid members, Primary360 is designed to be a "one-stop shop" for personalized healthcare that patients can access through an app on their phone.
Personalized healthcare goes beyond "doctor visits on a screen," giving patients care based on their ongoing needs and conditions. Imagine you have hypertension or diabetes. You take daily vitals and receive personalized insights from Primary360 based on those readings in real time. Need to speak to a provider? Access to doctors and/or coaches is available at your fingertips. The data is continuous so that the care your receive is always up-to-date.
Primary360 is in the early stages of its roll-out; Teladoc needed the Livongo acquisition to complete the system. Management is expecting Primary360 to begin materially contributing to Teladoc's revenues in 2022. Livongo was a pioneer in using technology to monitor chronic conditions proactively. The company was founded back in 2008, has been awarded more than 20 patents, and to date, has collected more than 1.46 billion data points on its users. Competitors could eventually develop their own systems to compete, but Livongo's significant head starts on time, patents, and data are now Teladoc's advantage.
3. The stock is on the clearance rack
The market currently views telehealth as a commodity, driving down the share price of Teladoc's stock. It currently trades at a market cap of $25 billion, just $7 billion more than Teladoc paid for Livongo alone last year. Teladoc saw $1.4 billion in revenue in 2020, up 81% from 2019's of $798 million. This year, management is guiding for revenue growth of 80% to 85%, totaling about $2 billion. A company maintaining its revenue growth rate even as the economy reopens doesn't sound COVID-dependent to me. Teladoc's management team is forecasting adjusted EBITDA of $255 million-$275 million for this year, signaling that positive net income could be close behind.
Investors will want to closely follow the rollout and adoption of Primary360 over the next several quarters. It distinguishes Teladoc from its competitors and elevates the company beyond the "telehealth is a commodity" narrative. If Teladoc successfully develops Primary360, investors could be looking at very healthy gains in the future.
