Wall Street won't remember the first half of 2022 fondly. A barrage of issues led to a bear market, and many stock market darlings suddenly looked mortal. Challenging economic problems could still lay ahead.
However, keeping a long-term mindset can help gain perspective. As things stand, many quality companies appear to have fallen far too much, presenting attractive entry points. Here are two examples: Teladoc Health (TDOC 0.05%) and Netflix (NFLX 0.39%) -- and here's why they merit a closer look now.
1. Teladoc Health
Telemedicine company Teladoc is struggling in more ways than one. It recorded net losses during the first two quarters of the year due to non-cash impairment charges related to its 2020 acquisition of Livongo Health. Its revenue growth has also dropped compared to the past couple of years. Market-wide issues are enough for investors to face without adding company-specific problems, and that's why Teladoc's shares have likely plummeted this year.
But at current levels, the healthcare giant looks like a bargain. Telemedicine is incredibly convenient for meeting basic healthcare needs, such as physician consultations and referrals. Beyond that, one of Teladoc's main strengths lies in the network of services it provides, especially in mental health and the management of chronic health conditions.
In the former category, the state of mental health worsened during the pandemic. According to one study, reports of probable depression and anxiety in the U.S. were six times higher by November 2020 than they were in 2019. There is an unmet need for mental healthcare services, Teladoc argues, with 55% of patients in the U.S. receiving no care.
Mental health problems cost the U.S. economy an estimated $1 trillion in lost productivity.
Meanwhile, chronic health conditions are on the rise. According to an estimate, 83 million Americans will have three or more chronic illnesses by 2030 -- unless, of course, current trends are reversed. Customers often come to Teladoc for its primary care offerings, but many end up enrolling into more of the company's services in chronic care, mental health, or other areas. That's partly how Teladoc is managing to increase its average revenue per U.S. member.
In the second quarter, this metric increased by 13% year-over-year to $2.60. The company's total revenue increased by 18% year-over-year to $592 million, a performance it attributed in part to its rising revenue in its mental health business and greater-than-expected enrollments in chronic care. Teladoc's complementary network of healthcare solutions should continue to attract new clients.
According to the company's CEO, Jason Gorevic, Teladoc has "twice as many multimillion dollar deals in the pipeline as we did, as we entered the third quarter last year." Although companies are delaying many of these deals as a result of the challenging economic environment, these headwinds won't last forever. In the long run, expect Teladoc to grow its ecosystem of patients, physicians, and healthcare offerings, which should help it generate steady and increasing revenue.
At less than half the price its stock was worth at the beginning of the pandemic, the healthcare company looks like a steal right now.
In the eyes of many investors, Netflix's biggest problem is lackluster (or non-existent) user growth, partly due to stiff competition. It is also dealing with password-sharing issues. The streaming giant is missing out on substantial revenue when its viewers pass on their accounts to others that do not live in the same household. These issues are real, but there is more to the story.
For Netflix, user growth is important, but it is only part of a complex equation that predicts success. Engagement is another critical piece of the puzzle for the company. It wants to keep viewers glued to their screens, and it can only do that by producing quality shows, which cost a lot of money. The payout is worth it, though. Netflix can collect viewer habits and demographic data to help steer its content production strategy.
That, in turn, leads to more engagement, and in the long run more customer loyalty. Companies that build strong customer loyalty can afford to raise their prices without worrying about losing the bulk of their clients. Apple's iPhone remains in high demand even amid deep economic troubles and inflation, even though many cheaper smartphone options are available. That's customer loyalty. And it is a powerful thing.
Netflix isn't done growing its membership. It guided 1 million net subscribers during the third quarter. As the company has argued, legacy pay television peaked at 800 million households outside of China. Netflix isn't even halfway to that total. Further, cable and broadcast still control about double the percentage of television viewing time that streaming does.
Netflix is developing solutions to its password-sharing problems, and it is still pouring money into new content. The company isn't done offering market-beating returns, not even close. In the meantime, those who get in now will be doing so at a discount, considering Netflix's shares are down by a massive 62% since the beginning of the year.