This Health Stock Is Down 75%, Yet Business Is Booming

Will Teladoc (TDOC -0.07%) be able to successfully navigate a competitive category and cut through the competition? In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 2, Motley Fool contributors Brian Feroldi and Brian Withers analyze Teladoc's financials and speculate on the company's strategy going forward.

Brian Feroldi: Moving on to Teladoc Health, which is currently down 75% from its 2021 highs and it's basically trading at the same place it was before COVID started. How's that for a number there? But, the company's financials must be falling apart. Let's look. I see that total visits at the company grew 41% last quarter to 4.4 million. Member utilization increased 668 basis points to 23%. Now, paid membership in the United States only grew 3%. However, Chronic Care grew 22%. That's mostly the Livongo customers, 729,000. Now, here's the kicker. Average revenue per U.S. member grew 52% to $2.49. Membership growth was lackluster, but man, are they doing a good job of monetizing their users at a higher base. You add all of that together, total revenue grew 45% to $554 million. That exceeded the high-end of management's guidance. The news gets better further down the income statement. Adjusted gross margin, yes, adjusted, but still gross margin, up 50 basis points to 68.4%. Expenses dropped everywhere and mostly due to much lower stock-based compensation expenses. This company's financials have been messy for a long period of time given the acquisitions that they've made and that's still the case with the Livongo still in the books. However, higher gross margin fall on your expenses. This company's net loss is still a loss but the net loss shrank to just $11 million or $0.07 per share, so getting really close to that break-even number. Now, looking toward guidance, visits in the upcoming quarter are expected to grow 29% to 35%. Revenue is expected to grow about 25% in the first quarter. For the full year, similar numbers. Revenue is expected to grow 25% to 30%, so this company still expects to move its top line higher. On the flip side, membership growth is only expected to be between 1% and 5% although visits are expected to be up 20% to 30%. Right now, the story at Teladoc is they're not focused on membership growth. They are focused on monetizing the members that they already have at a higher base and that is what is driving revenue. Meanwhile, the company spending is shrinking so the net losses are trending in the right direction. But if you would just look at revenue in the top line perspective, Teladoc's never been doing better.

Brian Withers: Great update, Brian. This sounds a little bit like the Pinterest (PINS -0.52%) story where members aren't growing significantly, but the average revenue per member or the usage for members are going up. How long do you think it will take investors to wait to see results in the stock?

Feroldi: Yeah, that's a fair question that I don't think anybody knows the answer to.

Withers: I figured I'd ask you just in case. [laughs]

Feroldi: Yeah, thanks. I'm not an investor in Teladoc myself. I've been skeptical of the company's growth by acquisition strategy since Day 1 and it paid off handsomely for a couple of years. But, the stock has really hit a skid recently. That's just a question that investors are going to have. The company is no longer focused on membership growth. It built out its base of members and, right now it's saying, "Hey, we can get way more revenue from the members we have as opposed to trying to add new members." Now, is that the case because the competition is heating up? We've seen a lot of companies come public that are in this space and they could be challenging Teladoc, making it harder for the company to carve out game for itself. That's an unanswered question there. The other question is, is this company's appetite for acquisitions still going to remain high? Is that going to be a really big part of the thesis, or is the company finally going to pull back and say, let's focus on just the operations for a little while, get ourselves to free cash flow positive, get ourselves to profitability and grow that way? That, we'll see. When does that translate into Wall Street buying the story and the stock moving in the direction that we want to see? That is anybody's guess. But I can say, if you're looking at revenue, it's heading in the right direction.