Teladoc Health (TDOC +1.63%) is a leading telehealth company that helps patients reach doctors, regardless of where they're physically located. The service picked up steam amid the early stage of the coronavirus pandemic, and some investors have been concerned that its popularity could be fading.
Although the business has continued to do well in recent quarters, growth has slowed down. There are multiple questions about the company's operations that its upcoming quarterly results -- scheduled for July 27 -- will need to adequately answer to ensure that investors stick around.
Here are the top three burning questions I'll be looking to get answers on this quarter.
NYSE: TDOC
Key Data Points
1. Can the company keep growing virtual visits?
Teladoc last reported its quarterly earnings in April, for the period ended March 31. In terms of virtual visits, they remained strong at 4.5 million. That's 35% higher than the year-ago period. However, the company's forecast for the upcoming quarter was lukewarm with a projection of 4.4 million to 4.6 million visits. That suggests Teladoc wasn't seeing significant growth at the time to warrant a generous forecast.
With people switching jobs amid the Great Resignation, creating gaps in healthcare coverage, and rising inflation keeping costs up, a relatively low-cost telehealth service should see strong demand. If Teladoc's numbers don't come in better than expected, that could be a sign that it still has a long way to go in convincing customers that it's a viable alternative to in-person visits, or that competition is heating up. Amwell, CVS Health, and even Amazon are a few examples of companies that also offer telehealth services.
2. Will membership finally show some strong growth?
A key metric that often doesn't get much attention on Teladoc's earnings reports is the number of U.S. paid memberships. Part of the reason is that the growth hasn't been all that impressive. Teladoc reported 53.6 million paid memberships as of the end of last year, just 3% higher than a year ago, when it had 51.8 million paid members. And at 54.3 million in Q1, they weren't a whole lot higher last period, either.
You don't need to be a member to gain access to the company's services; even people without insurance can set up a virtual visit. However, the real potential is in signing up businesses looking to provide telehealth services for their employees, which can quickly amplify Teladoc's virtual visits. This is why membership numbers can be of key importance. They can prove to investors how well Teladoc is growing its business.
It's of particular importance as Teladoc has invested into a new Primary360 care service, which promises robust, whole-person, virtual care for patients. On an earnings call earlier this year, CEO Jason Gorevic cited a 95% member satisfaction rate with the service. If it's as good as the business is saying it is, then the membership numbers should be rising -- at a better rate than just a few percentage points.
3. Can cash flow from operations turn positive?
In Q1, a lot of the focus on Teladoc's numbers were that its net loss was a staggering $6.7 billion. That was mainly due to goodwill impairment charges of $6.6 million. In essence, it was an acknowledgment that the company paid too much to acquire chronic-care company Livongo Health a few years ago.
I'd argue that the more important issue is Teladoc's operating cash flow. During the period, Teladoc used up $31.7 million to fund its day-to-day operations versus just $18 million in the prior-year period. At a time when investors are cautious of companies that aren't profitable and burning cash, Teladoc needs to show that it's going in the right direction.
Otherwise, investors could continue to sell off the stock -- year to date, it's down 54%. In comparison, the S&P 500 has fallen by just 18%.
Investors shouldn't rush to make any decisions
Even if Teladoc Health doesn't provide great answers on these questions, I'll probably remain invested in the business just because of the potential I see in it in the long haul. Teladoc isn't going to run out of money anytime soon, having reported more than $800 million in cash and cash equivalents last quarter, and the sector will only get bigger in the years ahead.
However, these are important questions to keep in mind when the healthcare company reports earnings as they will help investors track just how well Teladoc is doing.
