Teladoc Health (TDOC -0.53%) fell more than 50% last year -- and at the time, investors hoped for a recovery this year. But things got worse for the telemedicine giant. And that "worse" came in the form of two billion-dollar non-cash goodwill impairment charges. Teladoc also suffered as the current economic environment weighed on business. For example, potential customers -- hurt by rising inflation -- took longer to sign deals with Teladoc.
Today, Teladoc shares are heading for a 64% annual decline. So, now, investors are asking themselves the same question they asked themselves a year ago: Will Teladoc recover in the new year? Let's take a closer look -- and find out whether 2023 might bring victory to Teladoc and its investors.
Teladoc's path until now
First, let's consider Teladoc's path to this point. The company's revenue already was on the rise before the pandemic. But the health crisis gave Teladoc an extra boost. That's as people preferred a virtual medical visit to contact with others in medical offices. As a result, Teladoc's revenue and visits soared in the triple digits in the early stages of the pandemic.
As businesses reopened, Teladoc's growth didn't stay at those levels. But it remained strong. Revenue and visits have climbed in the double digits in recent quarters. That's positive. But a few negative elements have heavily weighed on Teladoc.
The company's goodwill impairment charges totaled $9.6 billion. They were linked to the 2020 purchase of Livongo, a specialist in the virtual management of chronic conditions. Investors also worried about Teladoc's lack of profitability. And Teladoc, like other companies, has dealt with the challenges of a slowing economy.
We'll talk about Livongo first. It's disappointing that Teladoc overpaid for the assets. But it's important to keep in mind that this purchase could serve Teladoc well over time.
Chronic care is a key growth market for Teladoc. Almost 60% of adult Americans suffer from a chronic condition. There's clearly a need for this service. And a variety of chronic care programs has been associated with member retention at Teladoc. As patients sign up for more chronic care programs, they've been more likely to stick around.
The profitability element
As for profitability, Teladoc's lack of it today isn't shocking. The company still is rather young and in high-growth mode. And it offered investors a bit of bright news in the most recent quarter. Teladoc reported a narrowing of its net loss. And Teladoc didn't report any further impairment charges from the Livongo purchase.
Finally, problems like higher inflation haven't hit Teladoc in the same way that they've hit retailers, for example. But Teladoc hasn't been completely immune. As mentioned above, companies are struggling with higher costs -- so they're taking longer to sign off on healthcare packages for employees. That slows down the stream of revenue at Teladoc.
The good news is this is a temporary issue. As the economic situation starts to improve, growth here should follow.
A few more positive points
Meanwhile, in addition to the positive points I've already mentioned, there are a few more to consider. Teladoc's deal size is on the rise. It's 50% larger than the average deal a year ago. Also, Teladoc has managed to increase U.S. member numbers and revenue per member from quarter to quarter. These are key elements for the growth of overall revenue.
Finally, Teladoc's full suite of services -- from mental health to chronic care and primary care -- have helped it win business from rivals. And that could continue.
Today, Teladoc shares are trading for about 2.2 times sales. That's close to their cheapest ever. This looks like a very reasonable point to enter the Teladoc story. Especially considering the company's most recent earnings news and its leadership in the growing telemedicine market.
Will Teladoc recover in 2023? It's impossible to predict for sure. But potential is there. Teladoc has the elements necessary to bounce back next year -- and deliver gains over the long haul.