Shares of virtual healthcare provider Teladoc Health (TDOC 3.43%) fell 54% last year, according to data provided by S&P Global Market Intelligence. The performance is especially painful in a year in which the S&P 500 index climbed nearly 30%. The primary concern is growth. Although management has a reasonable explanation for a slower 2021, Wall Street has even more questions about the future.
Teladoc grew U.S. subscription members 41% in 2020. That was thanks mostly to the onset of the coronavirus and aided by its acquisition of Livongo, a digital chronic care management company. CEO Jason Gorevic knew 2020 would be a tough act to follow since so many deals were pulled forward during the pandemic. And he was right.
Through three quarters of 2021, the number of U.S. subscription members has grown only 2% to 52.5 million. Management's forecast for the fourth quarter -- 52.5 million to 53.5 million -- includes a scenario in which membership completely stalls. Gorevic has continued to assure investors that the pipeline of deals is restocked for the years ahead. The uncertainty has decimated the company's valuation.
Teladoc's market capitalization was cut in half through 2021 and is down to $13.2 billion. That's a 70% collapse from its peak in February. Further, the company's value as a multiple of gross profit is at a multiyear low; the ratio bottomed at 12 during pullbacks in 2018 and 2019. Factoring in the company's projected fourth-quarter estimates and recent profitability, shares currently trade at less than 10 times 2021 gross profit. That could make now a great time to buy or a trap if the company fails to live up to its potential.
What might derail it? For one, competition is heating up. And not just from the usual suspects like Amwell or Doximity. Unitedhealth Group (UNH 1.29%) -- the largest health insurer in the U.S. -- recently launched its own virtual-first health plan called NavigateNOW. Analysts are worried in-house offerings like this from managed care organizations could cut out third-party providers. For its part, Teladoc management sees the trend as validating the virtual care space and creating a catalyst for smaller local plans to step up their own offerings. In October, it even announced deals to provide its virtual primary care offering to customers of CVS Health and Centene.
Whether the changing landscape shrinks Teladoc's addressable market or accelerates adoption remains to be seen. As everyday life adapts to COVID, 2022 should provide investors a good idea what to expect in the years ahead with respect to growth and profitability.