Benefiting from COVID-19-related lockdowns that had people turning to telehealth solutions like Teladoc Health's (TDOC 0.30%), the company saw its growth accelerate in 2020. But concerns have surfaced about the telehealth specialist's long-term growth prospects following recent acquisitions. Many investors may be wondering: Could these acquisitions signal a low confidence in the company's long-term organic growth potential or do they represent truly synergic mergers that could strengthen Teladoc's business?
Based on a look at Teladoc's just-posted second-quarter results, the company's growth story appears to alive and well. Though there are notably some steep costs associated with the tech company's investments in growth opportunities.
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Strong business momentum
Teladoc's fourth-quarter revenue rose 109% year over year to a record $503 million. Of course, this was helped by two recent acquisitions: InTouch Health last summer and Livongo Health last fall.
Nevertheless, there was strong momentum in many areas of Teladoc's business. Worth highlighting, total visits rose 28% year over year. This is impressive since the company is up against an incredibly tough comparison, as Q2 2020 marked the first wave of the pandemic in the U.S. and in many other countries.
"Teladoc Health delivered a strong second quarter," explained Teladoc Health CEO Jason Gorevic, "marked by exciting new client wins, product launches, and tremendous progress on our quest to be the category-defining provider of whole person virtual care."
Reflecting the company's momentum, Teladoc management increased its projection for full-year revenue to a range of $2 billion to $2.025 billion. Previously, management was expecting 2021 revenue to be between $1.970 billion and $2.020 billion.
Profits are still far away
Perhaps explaining the stock's sharp decline in after-hours trading on Tuesday, this growth has come at a cost. The company reported a loss of $134 million for the period -- wider than the $26 million loss it reported in the second quarter of 2020.
Management noted that its loss for the quarter included $61 million greater stock-based compensation compared to the second quarter of 2020. This was primarily due to "higher expense associated with Livongo stock awards that continue to vest after the merger," Teladoc said. But also impacting the loss was a nearly $38 million year-over-year increase in amortization of acquired intangible assets from its acquisitions of Livongo and InTouch Health.
Teladoc's full-year outlook for a loss per share between $3.60 and $3.35 may have spooked some investors, too.
Nevertheless, there is hope that these losses will subside and eventually turn into significant profits. The company's gross profit margin for the quarter was 67.9%, up from 61.7% in the year-ago quarter. This is because the businesses Teladoc has acquired are higher margin than Teladoc's native platform business. As the company's top line grows, Teladoc will likely eventually benefit from the operating leverage of its business model and the scalability of its recently acquired lucrative poducts.
