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This Company Could Beat Out Teladoc, and It's Not Amazon

By Natalie Forbes – Sep 22, 2022 at 9:40AM

Key Points

  • Demand for in-home health services is rapidly increasing.
  • DocGo offers cost-effective mobile health services so that patients can be treated in the comfort of their homes.
  • The company is growing rapidly and is already profitable despite its short history.

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A potentially disruptive business model is finding its legs in the post-pandemic healthcare landscape.

The pandemic has encouraged a transition toward home-based healthcare solutions. Demand for telemedicine skyrocketed, and roughly two-thirds of Americans are now willing to meet their doctor remotely through a video visit. At the same time, virtual sessions are inherently limited since caregivers can not perform a comprehensive physical exam. Both caregivers and patients alike may be concerned that relying too heavily on telemedicine could hurt long-term care and that many chronic conditions can not be fully treated remotely. 

Rapidly growing health services company DocGo (DCGO 3.63%) aims to bridge the gap between telemedicine and traditional office care, by providing "last mile" services that enable in-home care. The company describes itself as providing first-of-its-kind "Uber-like" non-emergency transportation for hospitals and "upskilled" medical professionals that can perform in-home visits at a lower cost. 

Teladoc struggles even as telemedicine demand surges

Teladoc's (TDOC -0.44%) virtual visits almost doubled at the beginning of the COVID-19 outbreak, and roughly one in four Americans opted for telemedicine services during the pandemic. The rising demand for virtual healthcare caused Teladoc's revenue to nearly quadruple over two years, from $550 million in 2019 to $2.1 billion in 2021. But growth is slowing, as revenue increased only 7% over the first half of 2022. While this growth rate is certainly still respectable, it is falling short of its lockdown levels.

And despite all this growth, Teladoc is struggling to turn a profit. The company's net income has consistently been negative, but it became even more negative during the pandemic surge and has plummeted since the start of 2022 due to Livongo write-offs. Teladoc has now taken almost $10 billion in impairment charges from its ill-fated $18.5 billion acquisition of Livongo two years ago. Consensus estimates don't expect earnings to turn positive for at least several years. 

Teladoc offers enormous scale, partnering with over 70 global insurers and 50 health plans. This should not be underestimated, as Amazon Care's telehealth business is shuttering at the end of the year after enrolling only six corporate clients, citing that the service was "not a complete enough offering for the large enterprise customers we have been targeting." 

However, the field is becoming more crowded. Deep-pocketed players such as Amazon, CVS, and Walmart are looking to carve a niche for themselves in value-based care that merges remote services with traditional inpatient care. At the same time, healthcare providers are also getting into the space, with four out of five physicians saying that their organization now offers virtual care. And direct-to-consumer mental health start-ups such as Cerebral are pushing up Teladoc's marketing costs. As impressive as Teladoc's 92% increase in virtual visits may sound, its twofold increase comes nowhere close to the 38-fold increase in telehealth visits that occurred nationwide during 2020. 

Rising demand for care at home

DocGo offers a slightly different take on medical care, by providing mobile health and medical transportation services. The company hires licensed practical nurses to offer at-home services, cutting down on costs compared with physicians or nursing care professionals. The caregivers then perform routine physicals or exams, bedside procedures such as testing or wound care, cardiac monitoring, or administer vaccines and medications. The company operates a fleet of vans, which transport caregivers and can also be leased by a hospital for nonemergency transportation of patients. 

Currently, the company offers its services to hospitals, insurance payers, municipalities, and events. It entered eight new markets in the past year and is now licensed to operate in 37 U.S. states. It has a number of key partnerships, and DocGo expands by forming an anchoring partnership within a target market and then rolling out services into the community.  

Since 2021, DocGo has gone public, achieved positive net income, and increased its operating margin to 10%. In the past four years, revenue expanded almost 10-fold from $48 million to the $430 million estimated in 2022. The company has continued to grow in 2022 even as COVID-19-related testing and vaccination visits have dropped off, with second-quarter revenue expanding 76% year over year.

As people shift away from traditional in-office healthcare, telemedicine is likely to provide only a portion of the necessary care and other solutions will be needed to serve an aging community and those with chronic conditions. McKinsey estimates that up to $265 billion worth of care services could shift to the home by 2025. This is about 25% of the total cost of care. With the macro trends leaning toward virtual and in-home care, DocGo estimates that it has achieved less than 1% market penetration, giving the company tons of room to grow. 

DocGo is a more speculative choice and has yet to truly prove its business model, but despite its short history, it is already profitable and has so far managed to grow quickly without overreaching. The price-to-earnings ratio of 20 could be reasonable for a potentially high-growth company, and the stock offers an interesting alternative to Teladoc.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Natalie Forbes has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Teladoc Health, and Walmart Inc. The Motley Fool recommends CVS Health and CVS Health Corporation. The Motley Fool has a disclosure policy.

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Stocks Mentioned

DocGo Inc. Stock Quote
DocGo Inc.
$10.99 (3.63%) $0.39, Inc. Stock Quote, Inc.
$120.85 (-0.08%) $0.10
Walmart Stock Quote
$132.74 (-0.14%) $0.18
CVS Health Stock Quote
CVS Health
$98.99 (-1.45%) $-1.46
Teladoc Health Stock Quote
Teladoc Health
$26.91 (-0.44%) $0.12

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