The healthcare industry isn't always known for record-high returns, but the resilience, stable growth, and often, dividends, that these companies deliver are a tremendous draw for investors of all trading styles looking to build their portfolios. However, as companies across all industries have faced extreme volatility in recent months, some healthcare stocks have been hit harder than others.
Teladoc (TDOC 2.46%) is certainly one of them. In this segment of Backstage Pass, recorded on Dec. 22, Fool contributor Rachel Warren explains her investing thesis for Teladoc and why the stock is still a top contender for long-term investors to consider right now.
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Rachel Warren: I'm going to go with another company that is in the same boat in the sense that the business is still looking really good, but boy, the market has not been kind to the stock, and that would be Teladoc.
This is a company I have talked a lot about over the past few months. This is a company in which I am an investor. I invested in it when shares had already dropped significantly down from its all-time high.
I think currently the stock is down. I think 50% year-to-date last I checked, so it has certainly declined. What's interesting about this company is that while the stock has declined significantly, its business and its place within the broader telehealth space is stronger than ever.
The global telehealth market. This is a multi-billion dollar industry. This market grew 135% in 2020 and is on track to hit a valuation of $636.4 billion by the year 2028, according to Fortune Business Insights.
As Danny noted, Teladoc is 68% off its high. Really trading at a sale right now, one could argue. But again, this market which is on track to be worth just shy of $640 billion by 2028, telehealth remains the key leader within this global marketplace.
What's interesting as well about this company, this is one of the top holdings in Cathie Wood's ARK ETF (ARKK 1.43%). Roku (ROKU 2.94%) is her second-largest holding. Teladoc is the third-largest holding in that fund.
She is a well-known bargain hunter. I tend to align with that philosophy when I go shopping for stocks myself.
In the most recent quarter of this year, the third quarter, Teladoc's revenue was $522 million. That was an 81% jump from the year-ago quarter. It also reported nearly four million visits on its platform in the third quarter. That was 37% higher than the third quarter of 2020. You're making these comparisons to a period that a different phase of the pandemic, but a very grave period, late last year, and it is still continuing to see this huge jump in visitors and revenue.
A couple of other things that really struck me from its most recent quarterly report. In the first nine months of 2021, which offers a really nice comparison to the greater portion of 2020. In the first nine months of 2021, its U.S. revenue, revenue just from U.S. users was up 188% year-over-year. International revenues were up 54% year-over-year. Those were its other revenues.
Visit fee revenues in the U.S. were up 13%. Its total revenue increased during that nine-month period was up 108% year-over-year. This is a business that is continuing to grow at a really rapid clip and not only retaining customers but adding to it as well.
I think the thing that's been a real issue for some investors and part of why the stock has declined so much, despite other factors like ongoing volatility in the market is the company has a pretty steep net loss on its balance sheet. It ended the first nine months of 2021 with a net loss of about $418 million.
But you look at why that is, some of that is stock-based compensation. A good portion of that also has to do with the acquisition it made of Livongo back in 2020, which really expanded Teladoc's ability to basically provide one-stop-shop telehealth solutions for customers around the world. Whether you are in need of general wellness care, you need to connect with some mental health concerns or even get specialty care with the physician virtually. That ability has only been expanded with this acquisition.
I think this is one of those things where investors will have to be patient as the impact of that wanes from its balance sheet. One final note, I will say the company is profitable on an adjusted EBITDA basis.
That metric was $67 million for the third quarter of 2021. This is a stock I really like. I have continued to watch it carefully as the shares have declined.
The big thing for me has been is the business changing? Its prospects within its broader industry changing? To date, nothing that it's reported has raised alarm bells for me about the actual business. I will probably add to my position. Hopefully, while it's still on sale.
