What happened

Shares of Teladoc Health (TDOC -4.04%) have gotten slammed this year as the telehealth company is one of many unprofitable growth stocks that has fallen sharply this year. Through June 30, it was down 64%, according to data from S&P Global Market Intelligence

A weak second-quarter earnings report, which included a massive write-down and a guidance cut, helped sink the stock, as did shifting market sentiment. Investors may also have started to think that Teladoc, which is often considered to be the leader in telehealth, may lack a sustainable competitive advantage. The future of telehealth also seems uncertain after the pandemic gave it a temporary bump.

As you can see from the chart below, the stock has been on a downward trajectory for most of the year.

TDOC Chart

TDOC data by YCharts

So what

Teladoc's first-quarter results best explain why the stock lost more than half of its value this year and is down nearly 90% from its peak earlier in the pandemic.

The telehealth stock fell 40% on April 28 as the company announced a $6.6 billion goodwill impairment for its 2020 acquisition of Livongo Health. At the time of the deal, Teladoc paid $18 billion for Livongo in an all-stock transaction. The write-down not only showed that that deal was a bust but also cast a shadow over the company's growth strategy as it's grown in large part through acquisitions in recent years. If the Livongo deal is reflective of its other acquisitions, Teladoc may be wasting shareholder capital.

The company also cut its guidance due in part to weak performance from BetterHelp, its mental health division, which is getting hit by new competition providing low-cost alternatives. 

Several analysts downgraded the stock in the wake of the earnings report, a sign that the market was losing confidence in Teladoc management. Though the company is profitable on an adjusted earnings before interest, taxes, depreciation, and amortization basis, it continues to lose money based on free cash flow and generally accepted accounting principles (GAAP) rules.

Now what

Teladoc's guidance cut also set off alarm bells because management had earlier told investors that it could deliver 25% to 30% revenue growth through 2024. However, it now expects revenue of just $2.4 billion to $2.5 billion, representing growth of less than 20%.

That's evidence that the Teladoc growth story could be coming to a halt, which is especially problematic for a company that isn't profitable. While telehealth providers should gain market share from traditional ones, there's no question that Teladoc faces rising competition, including from the likes of Amazon, and its slowing growth renders its large addressable market mostly irrelevant.