Telehealth company Teladoc Health (TDOC 6.88%) has been one of Wall Street's scariest roller coasters over the past three years. After it rocketed more than 700% during the height of the COVID-19 pandemic, the stock fell to almost 90% from its high; I have whiplash writing this.
The stock is now a comeback story or on a path to zero, depending on who you ask. Here we'll see why the truth falls somewhere in the middle and what investors can expect from the stock moving forward.
NYSE: TDOC
Key Data Points
Poor execution is to blame
You can trace Teladoc's painful plunge to two primary problems facing the company. First, it paid an enormous $18.5 billion price tag to acquire medical technology company Livongo in late 2020. The addition of Livongo was supposed to be what Teladoc needed to offer a full suite of digital healthcare services that ranged from medical consultations to remote management of chronic conditions.
Management believed its new-look business would grow beyond pandemic tailwinds and forecasted annual revenue growth between 25% and 30% from 2021 through 2024, even as recently as this past January. But it hasn't been smooth sailing throughout 2022; revenue guidance was revised in first-quarter 2022, just months later, downward to between 18% to 23%. More bad news came in the second quarter, with management telling investors that revenue will come in at the low end of that.
Additionally, the company's expensive Livongo acquisition was written down by another $3 billion after a $6.6 billion write-down just the previous quarter.
Investors have every right to be upset. Missing promises and acknowledging the loss of value in Livongo are signs of poor execution and feel like the business is rapidly deteriorating.
Why Teladoc should stick around
Confronting the bad news doesn't mean that it's all bad news. Teladoc's stumbling, but it hasn't yet fallen. Revenue is still growing, even if at a slower pace than desired. The company saw a growth spike during the worst of COVID-19, and building on top of that should be considered a positive.
TDOC Revenue (TTM) data by YCharts
Paid members in the U.S. are also still substantial at 56.6 million, and Q2 was the most significant quarter-to-quarter uptick in over a year with a 4.2% jump from three months ago.
It would be one thing if revenue and users were falling, but they're growing. The company also has $883 million in cash and just generated $47 million in free cash flow last quarter -- remember that the $3 billion write-down of Livongo is a non-cash loss, so it doesn't have any effect on the company's day-to-day operations. All said, investors should reasonably expect Teladoc to stick around for a while, despite its falling share price.
When will shares recover?
Ah, yes, the million-dollar question. Unfortunately, there is no easy answer. Bear markets like what investors are seeing now push both strong and weak companies lower, and it's the strong ones that eventually recover and go to new highs.
Teladoc's Livongo debacle and slowing revenue growth have undoubtedly taken some shine off the stock. Wall Street will probably want to see an evident change for the better in Teladoc's growth and financials over the coming quarters before giving it too much credit.
Investors could see some positive price movement if the overall market improves, but I expect Teladoc to sleep in the dog house for a while. Don't rush to buy a damaged stock when so many strong companies are trading at discounts around you.
