Teladoc Health (TDOC +4.24%) reported its second-quarter results after the market closed on Tuesday. Its shares immediately plunged in after-hours trading and opened on Wednesday down 10.7% below the prior-day close.
With such a steep sell-off, you might think that Teladoc has big problems. However, the healthcare stock rebounded later in the morning on Wednesday as investors more fully digested Teladoc's news.
My view is that this comeback is warranted. I believe that there was a lot of good news in the virtual care leader's second-quarter conference call that shouldn't be overlooked. Here are three things investors might have missed with Teladoc's Q2 update.
Image source: Getty Images.
1. The bottom line isn't as bad as it might seem
Investors seemed to initially focus mainly on Teladoc's Q2 net loss of $133.8 million, or $0.86 per share. That result was a lot worse than the consensus analysts' estimate of a net loss of $0.56 per share. However, I think that Teladoc's bottom line isn't nearly as bad as it might seem.
It's important to understand why the company posted such a big loss. Most of it stemmed from acquisition-related expenses related to Teladoc's purchases of Livongo Health and InTouch Health. Both are investments that I fully expect will pay off nicely for Teladoc over the long run.
The rest of Teladoc's net loss was due to the company paying down debt. As with the acquisition-related expenses, my view is that the debt reduction is a story of short-term pain but long-term gain.
In addition, Teladoc expects its bottom line to improve. The company projects a Q3 net loss per share of between $0.78 and $0.68. Teladoc also continues to deliver strong revenue growth and looks for the momentum to continue.
2. Key metrics continue to improve
It helps when analyzing a company like Teladoc to look beyond only the headline numbers. There are several "under-the-hood" metrics that tell more of the story about how business is going. And those key metrics continue to improve.
Perhaps the most important metric to watch is Teladoc's revenue per member per month (PMPM). In Q2, the company reported $2.47 in revenue PMPM. That's an increase of 142% over the prior-year period. It also reflected a 10.3% quarter-over-quarter jump.
Teladoc also announced a Q2 utilization rate of 21.5%. In the same quarter of 2020, utilization stood at 16%. In the first quarter of 2021, Teladoc's utilization rate was 19.6%.
On a related note, visits increased 27.5% year over year and 10.2% quarter over quarter to 3,514 in Q2. What makes that especially impressive is that the number of visits related to infectious diseases fell.
3. The future is brighter than ever
If I had to single out just one thing from Teladoc's Q2 update as a reason for buying the stock, it would be that the company's future appears to be brighter than ever. Teladoc didn't say that word for word, but its management team provided several examples that support this optimistic view.
CEO Jason Gorevic highlighted Teladoc's big new agreement with HCSC, the fifth-biggest health insurer in the U.S. He said that this was "a landmark deal" for Teladoc. The company expects the HCSC contract will drive growth beginning in early 2022 that will extend over a three-year period at least.
Gorevic also noted that Teladoc's "late-stage pipeline at this point is 20% greater than it was last year." He added that the average size of these deals is 10% greater than it was in 2020.
Then there are Teladoc's new product offerings. The company's Primary360 product is a fully integrated solution for personalized primary care. Gorevic said that Teladoc recently signed "a significant Primary360 contract with a national payer" and that the company is "in late-stage discussions with several other health plans."
Teladoc also launched myStrength Complete earlier in July. It's the company's first integrated product with Livongo's chronic disease platform and it focuses on mental health.
But what about the potential for Amazon.com and other rivals to knock Teladoc off its perch? Teladoc's executives didn't mention any competitor by name. However, Gorevic seemed to take a veiled shot at Amazon, stating in Teladoc's Q2 call: "It's not enough to simply virtualize the current healthcare experience, simply putting a doctor on the screen. The healthcare system is already fragmented, and virtual care shouldn't simply mirror that problem."
Teladoc thinks that it can provide a holistic virtual care experience that other companies can't. If it achieves this goal (and I suspect that it will), Teladoc's future truly should be a bright one.
