Telehealth stocks have taken a beating this year. The takeaway for skeptical investors is that, with the pandemic ebbing, the need for telehealth will lessen. That's not necessarily the case, but that doesn't mean all telehealth companies will thrive.
Since the beginning of the year, Teladoc (TDOC 1.41%) and Doximity (DOCS 1.29%), businesses that occupy opposite sides of the telehealth equation, have tumbled, falling more than 73% and 48%, respectively.
Telehealth isn't going away, though, because consumers, forced in some cases to use it during the pandemic, found out they liked the convenience. The J.D. Power 2022 Telehealth Satisfaction Study, released Sept. 29, showed that 94% of telehealth users say they would use it for medical services again, citing convenience and the ability to receive care quickly.
Teladoc and Doximity are both early movers in telehealth, but one of them appears a lot more likely to bounce back sooner.
Teladoc is still growing revenue -- and debt
The good news for Teladoc, despite its stock's precipitous drop, is that the global leader in virtual care is continuing to grow revenue. In the second quarter, revenue came in at $592.4 million, up 18%, year over year. However, the company had a net loss of $3.1 billion, or an earnings per share (EPS) loss of $19.22. That compares to a loss of $133.8 million and an EPS loss of $0.86 in the same period last year.
The company may appear a bargain when you consider how far it has fallen and that it is trading for only 1.66 times sales, but it is carrying a lot of debt, roughly $1.6 billion. If the company was in a strong cash position, it might be able to afford quarterly EPS losses and eventually earn its way to profitability, but that's not the case. The company reported only $883.7 million in cash in the second quarter.
The company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) have been steadily declining. In the last quarter, EBITDA was $46.7 million, down 30%, year over year.
The other concern is that, despite a first-mover advantage, Teladoc doesn't have that big of a moat, and competition is growing. This past summer, Amazon spent $3.9 billion to acquire One Medical, which combines in-person care with digital and virtual care services. Insurers such as Cigna are also beefing up their virtual-care options, and CVS Health just agreed to spend $8 billion to acquire in-home healthcare specialist Signify Health.
Doximity has a unique first-mover niche for health professionals
Doximity allows healthcare professionals to utilize telehealth more efficiently. It's often considered the LinkedIn for healthcare professionals, but its applications do more than make business connections. The company says that more than 80% of U.S. physicians use Doximity and its platform gives advertisers the ability to reach a highly sought-after demographic.
Doximity's apps include up-to-date medical news and the Doximity Dialer. This allows doctors to contact patients with personal smartphones, but the calls and texts appear to come from the doctor's office number and are HIPAA (Health Insurance Portability and Accountability Act)-secure for patient privacy. Another Doximity app also makes it easier for doctors to offer referrals to patients.
Doximity, despite its share decline, has continued to grow revenue. In the first quarter of fiscal 2023, the company reported revenue of $90.6 million, up 25%, year over year. More importantly, the company is profitable, though net income fell to $22.4 million, compared to $26.3 million in the same period last year. Its EPS was up, even if only slightly, at $0.10, compared to $0.09 in the first quarter of 2022.
The company's guidance points to yearly revenue landing between $424 million and $432 million, representing a rise of 25% at the midpoint. It also predicted yearly adjusted EBITDA between $178 million and $186 million, compared with $150.3 million last year.
Doximity doesn't carry any net debt, which puts it in a stronger position to spend to expand.
Doximity has less competition in its space than Teladoc. Its closest competitors are Medscape, which provides integrated medical information and educational tools for healthcare professionals, and Medsender, which specializes in HIPAA-compliant faxes. The opportunity for growth in advertising revenue is significant as the medical profession is behind other industries in its share of digital advertising. As that changes, Doxmiity is expected to benefit. The U.S. healthcare advertising market is expected to reach a $28.1 billion market by 2027, with a compound annual growth rate of 4.81 between 2022 and 2027, according to a study by the IMARC Group.
The best choice for now
Telehealth is still a solid industry to invest in. However, Teladoc has too many short-term concerns with too much debt and quarterly losses to make it a solid choice, even for the more risk-averse long-term investor. Doximity, on the other hand, has a healthier balance sheet and a stronger position than its competitors. Both companies have early mover advantages, but Doximity is better placed to take advantage of that status.
