Tech giant Amazon (AMZN -1.11%) recently made some headlines when it decided to shut down Amazon Care, an in-person and virtual health service initially created for its employees but eventually expanded. Some may perceive Amazon's decision as a win for other telehealth giants such as Teladoc (TDOC 0.08%), but the truth is that Amazon is unlikely to stop trying to break into this lucrative industry.
Still, Teladoc's early mover advantage in telemedicine may allow the company to grow exponentially in the next couple of decades, delivering market-beating returns along the way. Meanwhile, some believe that Amazon's best days are far behind it. After all, the company's market cap exceeds $1 trillion, and it has achieved a substantial portion of its growth in the market over the past 20 years.
Amazon is one of the quintessential examples of success, but the company's market cap was about $6 billion 20 years ago, which is pretty close to Teladoc's current market cap of about $5 billion. Is there any chance that Teladoc will be worth more than Amazon in 20 more years -- that is, by 2042?
TDOC Market Cap data by YCharts
Teladoc's struggles and opportunities
Teladoc has dramatically lagged the market this year -- sinking 67% year to date. The main reason is the company's ugly net losses in both the first and second quarters. The telemedicine specialist owed these net losses to non-cash goodwill impairment charges related to its 2020 acquisition of Livongo Health -- clear evidence that Teladoc overpaid for this acquisition.
Still, although Teladoc's business has slowed a bit from its pandemic levels, the company is recording solid growth in revenue and other key categories. In the second quarter, the company's top line jumped by 18% year over year to $592.4 million. Teladoc's total U.S. paid membership increased by 9% year over year to 56.6 million, while average U.S. revenue per member came in at $2.60, 12.6% higher than the year-ago period.
Teladoc's early mover advantage and its network of more than 10,000 healthcare providers should help it remain a leader in this space as telemedicine continues to grow in importance.
The services it offers are extremely convenient. Why drive several miles for a consultation with a doctor? Patients can get similar levels of care from their homes, as well as prescriptions and referrals. Telemedicine thus has the potential to save patients time and money, which is why it is on an upward trend. According to some estimates, telemedicine could record a compound annual growth rate (CAGR) of 25.8% through 2027.
Teladoc seeks to become a one-stop shop for as many healthcare services as possible. For instance, the company is looking to expand its behavioral health and digital health management offerings beyond primary consultations with generalists. Both segments' growth partly explains its rising U.S. revenue per paid member.
The behavioral health market in the U.S. is growing, as is the prevalence of chronic illnesses such as diabetes that Teladoc's health management platform targets. All of these factors offer Teladoc plenty of room to run. In the long run, the healthcare company is more than capable of turning the tide following its disappointing performance in the market this year.
Amazon won't sit still
While Teladoc may grow in the coming 20 years, Amazon will do the same. The company's e-commerce platform is the sector's leader, holding a 37.8% share of the market in the U.S. as of June. As of the second quarter, e-commerce sales only made up 14.5% of total sales in the U.S. That metric is lower in many other countries where e-commerce penetration is still in its infancy. In other words, there is plenty of whitespace here. And Amazon has its hands in several other industries that will continue to rise, including video and audio streaming.
However, Amazon's most significant opportunity arguably lies in the cloud computing sector. The tech giant is a leader in this space thanks to its Amazon Web Services (AWS) division. Cloud solutions enable businesses to lower costs and improve productivity. Some project that this market will expand at a CAGR of 17.4% through 2030.
AWS has been growing its revenue faster than the rest of Amazon's business and boasts juicier margins. In the long run, it should work wonders for the tech company's top and bottom lines while allowing Amazon to continue beating the market, despite its market cap of well over $1 trillion.
The more important question
Can Teladoc grow exponentially faster than Amazon in the coming two decades to catch the e-commerce specialist in terms of size? The answer is a resounding no. But that's not a good reason to disregard Teladoc as an investment. The better question is this: Can Teladoc deliver solid or even market-beating returns over the long run?
I believe the answer is yes, considering its solid position in the telemedicine industry and the future of said industry. And now is an especially great time to get in on this healthcare stock, given that it currently trades below its pre-pandemic levels.
