Telemedicine -- medical care delivered via phone or internet video -- soared in 2020. That growth trend slowed in 2021 as many people returned to their doctors' offices. But the telemedicine trend isn't over. Big technology companies sure don't think so. Amazon (AMZN 1.30%) Care was launched nationwide early in 2022, and Oracle (ORCL 0.49%) and Microsoft (MSFT 1.65%) made big acquisitions in the space, the former taking over healthcare software company Cerner (CERN) and the latter conversational artificial intelligence outfit Nuance.
I believe telemedicine will remain a tremendous growth trend for the duration of the 2020s. Despite suffering a massive crash in share price, telehealth leader Teladoc Health (TDOC 3.31%) is still a buy in my book. So is Doximity (DOCS -0.85%), and the recent SPAC IPO DocGo (DCGO -0.28%) is worth a look. Here's why.
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1. The telemedicine leader is still in high-growth mode
The leader in the space, Teladoc Health, suffered a tremendous setback in its stock price. It has fallen nearly 80% from all-time highs as of this writing. An early pandemic darling, its growth has tapered off in the past year, and many investors have grown displeased with Teladoc's slim profit margins. Teladoc's market cap of $11.7 billion is far less than the $18.5 billion in cash and stock paid to acquire connected-care technologist Livongo Health in late 2020.
Things have gotten ugly for Teladoc stock as of late, but it's worth noting this company went public back in 2015 and has a track record of consistent revenue growth. Management believes its virtual care platform for primary care, mental health, chronic condition management, and a range of specialty care offerings will continue to expand. It sees revenue growing at an average 25% to 30% rate through 2024, excluding further acquisitions.
If Teladoc can pull it off, that would equate to about $4 billion in annual revenue by 2024. The company is beginning to reach a profitable scale, too. Free cash flow (FCF) was $130 million last year. That's a thin profit margin, given that Teladoc earned just over $2 billion in revenue in 2021, but if it can keep growing in the next few years, I expect this metric to improve.
At this juncture, Teladoc trades for 88 times trailing 12-month FCF and 4.5 times expected 2022 sales-to-enterprise value. The telehealth leader will need to prove its growth projections are the real deal, especially after the slowdown in virtual care it reported in 2021. Big tech competition is also a concern. But I believe digitally connected care will continue to improve and will expand its share of the healthcare market overall.
Teladoc stands to be a top beneficiary as a result. It will be a bumpy ride but now looks like a great time to start nibbling at this stock again.
2. Connected care from a social angle
Doximity, the social network for healthcare professionals, had its IPO about a year ago, raising over $600 million in proceeds -- not that Doximity was in dire need of the cash. The small company reported that it generated nearly $79 million in FCF through the first nine months of its 2022 fiscal year, an FCF profit margin of 32%. That's not bad for an upstart company's first year as a publicly traded concern.
But what does Doximity have to do with telehealth? This is far more than a social platform for medical professionals to stay in touch. It also has call and video capabilities built-in for physician-to-physician and physician-to-patient consultations. It has HIPAA-compliant tools for sharing medical records. And Doximity just deployed a small amount of its cash (it had $766 million in cash and short-term investments as of Dec. 31, 2021) to acquire small physician scheduling software outfit Amion.
Doximity is working from a position of strength, and it's reporting increasing uptake of digital tools among care providers and patients alike. According to a recent Doximity study, three-quarters of patient respondents said they would continue using telemedicine even after the pandemic.
Excluding the Amion takeover, Doximity thinks it will continue growing at a rapid pace in the next year. For fiscal 2023 (the 12 months ending March 31, 2023), it expects to grow annual sales to about $450 million, a 33% increase from its guidance for the current year. Highly profitable and putting up stellar growth numbers, Doximity looks like a great long-term buy right now. It trades for 85 times trailing 12-month FCF, but I think it's a worthy premium to pay -- assuming you have at least a few years to allow for this emerging growth story to unfold.
3. A new entrant in last-mile mobile care and telehealth
DocGo is a new entrant in the world of telehealth stocks, having just gone public via SPAC at the end of 2021. The company acts as a last-mile provider of mobile health and transportation services (ambulatory services), as well as a tech-enhanced service for sending a care provider to where it's most convenient (at a patient's home or place of work).
Operating the technology as well as employing a dedicated staff of medical professionals isn't cheap. That shows up in the financial numbers. In 2021, DocGo reported operating income of just $15.3 million on total revenue of $319 million. FCF for the full-year period was negative $6.76 million. DocGo itself admits it relies heavily on healthcare provider relationships. For example, kidney dialysis care center chain Fresenius (FMS 4.53%)accounted for just over 7% of DocGo's revenue in the last year. That reliance could be a liability if strategic partners suddenly decide to go in a new direction.
Nevertheless, DocGo has my attention, at the very least. Total revenue surged 239% higher last year. And while profitability is slim, this is still a small operation. If DocGo is scalable and profit margins rise as it expands, that revenue growth could be worth a lot to shareholders further down the road. After its SPAC IPO, it finished 2021 with nearly $176 million in cash and just $1.9 million in debt.
Of course, DocGo will need to prove it's far more than a tech-enhanced ambulance and mobile care provider. If it's nothing more than that, it could be tough going for the company as it fights to win market share from established ambulatory and mobile physician services. But the company touts that its platform can electronically dispatch the right professional with the right equipment and at the right time, as well as provide mobile medical records and insights to the professional administering care.
Put another way, DocGo could be a bridge between telehealth and in-person doctor visits. Management thinks it will grow at about a 30% pace in 2022. This stock is still in the "prove it" box for me, but it's on my watchlist.
