Teladoc Health (TDOC 2.92%) reported its 2021 fourth-quarter and full-year results on Tuesday. The virtual care provider had another record year based on financial performance. But its share price is still down around 75% below its high from early 2021.
There's obviously a big disconnect between Teladoc's business and its stock performance. I think that disconnect stems in large part from three big misconceptions about Teladoc Health.
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1. Slowing membership growth is worrisome
One key reason behind the steep decline for Teladoc has been its slowing membership growth. The company's U.S. paid membership increased only 3% last year. Teladoc projects that membership will grow between 1% and 5% in 2022.
Some investors could be worried about this trend. However, there's actually no reason for alarm. Why? For one thing, Teladoc is making a lot more revenue per member than it has in the past. In 2021, its average U.S. revenue per member soared 52%.
The company has more opportunities to boost its revenue per member. For example, Teladoc CEO Jason Gorevic noted in the fourth-quarter conference call that the company's mental health services act "like a gateway for other Teladoc services." He said that members who use mental health plus at least one other Teladoc service generate average revenue that's 20% to 60% higher than those who use only mental health services.
Teladoc should have a massive opportunity to grow even with anemic membership increases. The company estimates that it has a $75 billion untapped market within its existing membership base.
2. Teladoc's fortunes are tied to COVID-19
There's an even broader misconception about Teladoc: That its fortunes are tied to COVID-19. Telehealth adoption surged as a result of the pandemic. That definitely worked to Teladoc's advantage as the top virtual care provider. But Teladoc can prosper without any help from COVID-19.
Gorevic said in the Q4 call, "Most of the plan designs that had waived co-pays on virtual visits [because of the pandemic] have reverted back to charging co-pays for those visits. Most of the states who had waived licensure requirements have reverted back to requiring in-state licensure." However, he noted that these changes don't really affect Teladoc's outlook.
Instead, Gorevic maintained that he sees "only tailwinds going forward." He noted that there are efforts underway in the U.S. Congress to expand support and reimbursement for virtual care.
Teladoc's expenses should decrease in a post-pandemic world in one important way. The company expects a $4 million drag on first-quarter 2022 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from incentive payments to network physicians due to the spike in COVID-19 cases with the coronavirus omicron variant. However, Teladoc CFO Mala Murthy said in the Q4 call that this increased level of incentive payments should taper off.
3. Teladoc is a highly risky and expensive stock
Perhaps the most damaging misconception about Teladoc is that it's a highly risky and expensive stock. There's a strong case to be made against this view.
Teladoc's sharp sell-off over the past 12 months has changed the dynamics of the stock significantly. Its shares now trade at only a little over five times trailing-12-month sales. The company's projected revenue growth of between 25% and 30% this year makes Teladoc's forward sales multiple look even more attractive.
No, Teladoc isn't profitable yet. However, its bottom line is definitely headed in the right direction. And the company is already generating positive free cash flow.
But arguably the most compelling reason why Teladoc is not a highly risky and expensive stock is its market opportunity and position to capitalize on that opportunity. The company's total addressable market tops $260 billion -- in the U.S. alone.
Virtual care is cost-effective and convenient, which makes it attractive to both payers and patients. Teladoc stands as the clear leader in the industry with the broadest array of services and geographical reach.
The company's market cap remains at a little over $10 billion. Teladoc doesn't have to capture much of its addressable market to grow much larger.
