What happened

Shares of Talkspace (TALK 5.72%) were down by more than 18% on Tuesday. The stock closed at $5.93 on Monday, opened at $5.70 on Tuesday, then fell to a low of $4.76 in mid-morning trading.

It hasn't been a good year for the online therapy company, with its shares down more than 55% in 2021. The company operates as a virtual behavioral healthcare company where patients interact with therapists through an encrypted web and mobile platform.

A therapist talking with a patient via online video chat.

Image source: Getty Images. 

So what

Investors didn't like what they saw in the company's second-quarter report, released on Monday just after the market's close. The company's revenue was a reported $31 million, up 73% year over year, but the company lost $30.4 million, compared to $6.46 million in the same period in 2020. Gross margin also fell from 68% to 62%, year over year.

The company did say it increased total active members to 61,500, up 40% over the same period in 2020.

One problem for Talkspace is there's suddenly a lot of competition in online therapy, including BetterHealth, a division of Teladoc, Headspace Health, and Brightside all opening up in the last couple of years. Bigger companies are also muscling their way into the field with UnitedHealth Group adding its Sanvello division for online mental health.

Now what

The savings, privacy, and convenience of online therapy means the medium is likely to grow, even as the pandemic ebbs.

A study by Market Study Report placed the compound annual growth rate for the market for global behavioral and mental health software to be 19.6% from 2021 to 2027, reaching a market of $6 billion by 2027.

Talkspace, which began trading on the Nasdaq after its SPAC merger with Hudson Investment Executive was completed on June 23, is one of the better-known online mental health therapy companies and needs to maintain that brand edge to continue to grow its customer base. It did get $250 million as part of the merger, so using that money well to promote growth will be important.

The trick for this healthcare stock is to maintain or improve its gross margin while growing its business, something it didn't do in the second quarter. To investors, it needs to show that its business model can thrive once people go back into the office for work.