It's been a terrible past 10 months for telehealth specialist Teladoc Health (TDOC -2.40%). The company's shares are down by 68% this year. While market-wide issues haven't helped, Teladoc has its own problems, most notably on the bottom line. Persistent net losses have contributed to many investors' negative opinions of Teladoc.
However, others think that Teladoc's sell-off has gone too far and the company is an excellent buy at current levels. Who is right? Let's look into the healthcare company's recent developments and decide.
Recent financial results
Teladoc's stock dropped following the release of its first- and second-quarter results. The primary reason was that the company recorded deep net losses during both periods, primarily due to goodwill impairment charges related to its 2020 acquisition of Livongo Health. The telemedicine expert was under immense pressure to improve on that front in the third quarter, and the company delivered at least to some extent.
During the third quarter, Teladoc reported a net loss of $73.5 million, an improvement over the loss of $84.3 million recorded during the year-ago period. Sure, Teladoc continues to be unprofitable, but it had racked up close to $10 billion in net losses in the first half of the year. By comparison, $73.5 million sounds great.
Further, Teladoc continues to improve on other metrics. The company's revenue increased by 17% year over year to $611.4 million. Teladoc's total visits jumped by 14% year over year to 4.6 million during the quarter, while its U.S. paid memberships climbed to 57.8 million, 10% higher than the prior-year quarter. Average revenue per U.S. paid member jumped by 9% year over year to $2.60.
Teladoc continues to progress in the lucrative telemedicine industry, and its latest quarterly update was another example of that trend. Unsurprisingly, the company's stock jumped on the heels of this update.
Ample space for growth
In trying to determine whether Teladoc's stock is reasonably valued right now, it's helpful to figure out whether there is a substantial runway for growth in the telemedicine industry and if the company can remain one of the leaders in the space. Let's turn to the first question. Telemedicine isn't new, but it rose in prominence during the pandemic.
Telemedicine boasts several selling points for patients, including convenience and cost savings. It is convenient because it gives patients access to medical care without leaving their homes, and the time and fuel money they save on not having to drive matters, too. Doctors can't do everything over video conference. But basic consultations and prescriptions are a good start.
Estimates project that the industry will expand rapidly in the coming years, possibly clocking in a compound annual growth rate of 25.5% through 2027. Telehealth seems to be here to stay. But can Teladoc benefit?
Here's one reason why the answer is yes. The company benefits from a first-mover advantage and has already enrolled millions of customers in its plans. It continues to monetize these customers by signing them on to more services, which is why its average U.S. revenue per member keeps increasing.
Expanding its offerings
Some of the company offerings are particularly exciting. Consider Teladoc's mental health service, BetterHelp. The prevalence of mental health issues increased substantially during the pandemic. Teladoc responded by pouring lots of money into advertising to raise awareness on this issue and its solution to the problem: cheaper access to mental health experts via telemedicine.
The results have been positive. BetterHelp's revenue generally grows at a faster rate than the rest of its business, and it increased by 35% year over year during the third quarter -- more than double Teladoc's total revenue growth rate during the period. The company's mental health offerings, coupled with others such as chronic care, should help it make progress even within its current already-existing client base.
Teladoc had 791,000 of its members enrolled into one or more of its chronic care services during the third quarter, representing a 9% year-over-year increase. But that's still less than 2% of its 57.8 million U.S. paid memberships; note that 51.8% of U.S. adults have at least one chronic illness. The prevalence of various chronic conditions such as diabetes is on the rise. That gives Teladoc plenty of room to work with to improve its revenue and earnings in the coming years.
A large network of physicans
Could a competitor wrestle Teladoc's clients away? Maybe, but notice that the patient/doctor relationship is essential. Many people will not want to choose a different telehealth provider unless it can guarantee that the patient can stay with the same doctor.
Meanwhile, Teladoc already has a network of thousands of physicians across the more than 11,000 care locations with which it is associated. This ensures that Teladoc will remain one of the major players in this growing space. With plenty of potential years of growth ahead, the company's market cap of $4.7 billion -- lower than what it was in early 2020 -- seems pretty low. Teladoc's shares look like a steal at these levels, at least in my view.
The near-term outlook remains a bit shaky due to the challenging economic environment. But Teladoc will handsomely reward patient and loyal shareholders down the road.
