Teladoc Health (TDOC -2.75%) has gone from one of 2020's hotter coronavirus stocks to one of the worst healthcare performers of 2021. Shares are down more than 50% from their February highs -- and falling. Investors are becoming increasingly skeptical of the company's ability to operate a digital consultation platform outside of pandemic conditions -- and they are not wrong to be dubious.
The hype over telehealth is dying down -- and companies providing individualized virtual primary care are taking the brunt of the fall. Here's why the golden age for Teladoc stock is over.
Solid past financials, but lots of risks ahead
During Q1, Teladoc's total revenue increased by 183% year over year to $453.7 million as it facilitated 4.28 million sessions, up 109% from year-ago levels. It did not take many steps to improve its profitability, however, and its net loss widened to $199.6 million from Q1 2020's loss of $29.6 million. For the full year, the company expects its revenue to double to around $2 billion and for total visits to surge to 13 million.
Unfortunately, Teladoc's peak performance is arguably behind it -- and the company may have significant problems meeting its guidance. Telehealth use has already fallen by 37% from its pandemic highs.
What's more, in June, health system analytics company Trilliant Health released a report in which it analyzed 70 billion patient claims and 309 million patient visits. Its conclusion: Future demand for healthcare services overall will be flat or decline -- with little persistent tailwind from the pandemic -- and the use of telehealth in particular is slipping.
A lot of phenomena abide by the 80-20 rule, and telehealth appears to be one of them. For example, research has shown that only 13% of Americans have used telemedicine services during the pandemic. This is far less than what the number of total visits would imply, and it makes sense as a small fraction of users are responsible for a disproportionate share of visits.
There are a number of other players in this niche, among them Amwell (AMWL) and UpHealth (UPH), but due to its size and its spending on mergers and acquisitions, Teladoc has the most to lose if demand keeps sliding. Last year, the company spent $18.5 billion to buy digital chronic healthcare company Livongo Health. At the time, Livongo was only generating about $106.1 million in sales per quarter.
But chronic condition treatment isn't one of the more popular reasons why patients make use of telehealth services. Instead, behavioral health, substance disorder treatment, and consultations regarding endocrinology disorders take the top spots.
Much of Teladoc's core focus has been on direct primary care -- which is increasingly becoming a commodity market. Over the past year, branded telemedicine services such as Walmart's (WMT 0.27%) MeMD and Amazon (AMZN -0.16%) Care kicked off, making it harder for Teladoc and its peers to solicit individual patients.
I think there's a good chance Teladoc will miss its guidance for 2021. For the next two years, expect its growth to stall in a hypercompetitive, highly commoditized sector. In addition, its strategy of growing membership and visit count at a loss isn't helping its profitability situation. The stock looks extremely expensive at 11.8 times revenue. Investors who still want Teladoc in their portfolios would be well advised to wait for its valuation to come down even further before buying this healthcare stock on the dip.