Shares of struggling telehealth company Teladoc Health (TDOC 2.46%) collapsed after it recently released earnings for the first quarter of 2022. After shooting to roughly $300 per share in early 2021, the stock sits at just under $40, a staggering decline of more than 80%.
Management formally addressed its embattled 2020 acquisition of Livongo for $18.5 billion with a write-down on Livongo that reduced its value by $6.6 billion, essentially saying to shareholders, "We messed up."
It seems widely accepted that Teladoc's Livongo merger has gone poorly, but I don't know that the poor results of the merger adequately explain the stock's struggles. Here is the real reason I believe that investors are losing faith in Teladoc.
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Do as I say, not as I do?
I think Teladoc's struggles boil down to management's tendency to say one thing but have the company's performance do something else. In other words, they are not delivering on what they're telling investors. This makes it hard to trust management. Would you board a plane if you didn't trust the pilot flying it? I know I wouldn't. So what exactly am I talking about? I will walk through some instances that have made it difficult to rely on what management is telling shareholders.
BetterHelp struggles
Teladoc lowered its revenue guidance for the rest of 2022. On its 2022 first-quarter earnings call, management emphasized how BetterHelp, the company's mental health service, has seen less from its marketing spend over the past several weeks. CEO Jason Gorevic stated that he believed smaller, private competitors were challenging BetterHelp with low-cost alternatives.
However, just the prior month, Jason presented at the Cowen 42nd Annual Healthcare Conference and spoke highly of BetterHelp. Specifically, he had this to say:
We have so much demand on the consumer side that it really is the preferred place for a therapist to come if they want to deliver virtual care and get -- and increase the size of their patient panel. We onboarded over 1,200 therapists last month. I just spent time with the team yesterday talking about the success that we're having, and we really don't see any end in sight to that trend.
So, how do you go from the above statement to pointing it out as the first reason you lowered guidance for the year? I'm not saying that there is intentional deceit or anything malicious happening, but it's head-scratching.
Speaking of guidance
A company lowering its expectations is never a good thing. However, it's particularly frustrating for Teladoc because the company told investors at its Investor Day in November 2021 that it expected revenue growth to average between 25% and 30% per year through 2024.
Leadership reiterated that forecast at the J.P. Morgan Healthcare Conference in January 2022. But in the company's 2022 Q1 earnings, revenue guidance has been cut to between 18% and 23% year-over-year growth for 2022. Can you trust that Teladoc will deliver on expectations set for 2023 and 2024 if it can't hit its numbers in 2022?
Again, I'm not trying to bash the company, but strong companies tend to underpromise and overdeliver. Unfortunately, Teladoc is doing the opposite right now and appears wishy-washy at best when they communicate how business is going to shareholders. It makes it hard to lean on an investment thesis. Underneath the apparent blunders, the company continues to report and project revenue growth but will that be enough to turn the tide.
Moving forward
Teladoc's dramatically reduced share price could be an opportunity if you are a potential investor. Current shareholders feel the pain, but there are reasons to remain hopeful. Teladoc is still growing on top of its COVID-19 induced growth spurt, and telehealth is likely here to stay in the healthcare system. In fact, despite the company's struggles, Wall Street analysts continue to recommend investors hold the stock at the very least.
In either case, you need to decide how comfortable you feel with management that recently hasn't been able to deliver on what they forecast. I would need to see consistency over the coming quarters to establish trust in Teladoc's leadership.
