When Teladoc (TDOC +6.60%) had its initial public offering (IPO) in 2015, it was the only public company in the burgeoning industry of video-enabled doctor visits. Five years later, the pandemic pushed virtual care to the center of the healthcare system.
So far, the company has used acquisitions to assemble a fast-growing portfolio of services. But competition is heating up. Since it came public, the company has grown from a $1 billion valuation to nearly $23 billion. It will have to grow 43 times in value to reach $1 trillion valuation. Could it make it by 2040?
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A once-in-a-century accelerant
Teladoc has been growing quickly since going public. Members have nearly tripled since 2016 while revenue is expected to be about 15 times higher this year. Those numbers were boosted by the shift to remote care in 2020 and a huge acquisition.
Regarding the shift, U.S. visits last year were up 184% over 2019. As for the acquisition, the company bought Livongo -- a provider of digital and virtual services for patients with chronic conditions -- for $18.5 billion in cash and stock. As the pandemic lingers, the company is proving the initially maligned acquisition was the right move at the right time. It turns out there is still plenty of growth ahead for Teladoc.
While the number of members isn't increasing much after so many deals were pulled forward last year, the addition of Livongo is pulling another lever -- per member pricing. It's keeping growth alive while management works to sign more deals that will add members to its platform.
| Quarter | Members | Member Growth | PMPM | PMPM Growth |
|---|---|---|---|---|
| Q3 2020 | 51.5 million | 47% | $1.18 | 20% |
| Q4 2020 | 51.8 million | 41% | $1.76 | 93% |
| Q1 2021 | 51.5 million | 20% | $2.24 | 158% |
| Q2 2021 | 52.0 million | 1% | $2.47 | 142% |
Data Source: Teladoc Health; PEPM=per-member-per-month.
Success attracts competition
High growth in an enormous market like healthcare is going to attract a lot of attention. First from Wall Street and then from competitors. There is no shortage of services for virtual care. The need for telehealth during the pandemic gave several the opportunity to go public or expand.
Amwell (AMWL 3.16%) had its IPO in August backed by more than $100 million from Alphabet's Google Cloud unit. As part of the deal, the company moved some of its capabilities away from Amazon's web offering. Speaking of the now Bezos-less tech giant, it announced it would be opening up its employee-only telehealth platform to other companies sometime this summer.
Perhaps the most interesting development was the recent IPO of Doximity (DOCS +2.21%). The physician-focused platform that has been called the LinkedIn of doctors had its introduction to the public markets in late-June. Shares more than doubled from the offering price and are up 12% since. Many would be surprised to learn that it facilitated 63 million virtual visits in the 12 months ending March 31st. That dwarfs the roughly 12 million for Teladoc during the same span. Luckily for shareholders, there is room for more than one winner. Healthcare is an enormous market and much of it is shifting to a virtual setting.
20 percent for 20 years
Growth will have to be tremendous for Teladoc to reach $1 trillion by 2040. To get there, the market capitalization would need to grow 20% per year for the next 20 years. That would make it an all-time great company. It's important to remember that even if Teladoc manages that incredible feat, it doesn't mean shareholders will see 4,000% gains. Management has historically used its shares as currency to make acquisitions, and that has consequences. For example, revenue climbed more than 1,100% in the last five years but only 363% on a per share basis. That's if it is even possible for the company to get that big. Surprisingly, it might be.
Spending on chronic conditions is more than $1 trillion annually and is expected to double over the next 30 years. Those kinds of numbers are what make the Livongo acquisition so crucial to Teladoc's long-term aspirations. Hospital care and doctors visits are two of the primary drivers of the financial burden -- areas the company's solutions directly address.
Management believes the virtual care opportunity it is pursuing could be worth $250 billion. That's just in the U.S. The company has also made several acquisitions over the years to establish operations in Europe, South America, and China among other regions. Globally, the telehealth market is expected to grow 25% over the next six years.
With an average price-to-sales ratio of 12 over the past five years, Teladoc would need to have annual sales of more than $80 billion by 2040 to reach a $1 trillion market cap. Given its rate of growth, massive addressable market, and success integrating acquisitions, the math could work. While it's unlikely anyone would be complaining, it's important for investors to remember that they are unlikely to realize all of those gains themselves even if Teladoc can pull it off.
