Teladoc Health (TDOC -2.40%) sank 74% last year after two billion-dollar goodwill impairment charges were linked to an acquisition -- and concerns about the company's path to profitability. A brighter third quarter raised hopes. The company didn't report further impairment charges and even narrowed its quarterly loss.
But Teladoc Health crushed investors' optimism this past week when it reported fourth-quarter and full-year earnings. The telemedicine giant announced an additional goodwill impairment charge -- and that pushed the company's annual loss to more than $13 billion. At the same time, Teladoc offered investors hope in the form of a new focus. Is the worst over for this embattled company? Let's take a closer look.
Successes and failures
First, some background on Teladoc's successes and failures. The company is a leader in the high-growth area of telemedicine. During the early days of the pandemic, Teladoc's revenue and online visits soared in the triple digits as people favored staying at home over making a trip to doctors' offices.
But Teladoc also has shown it isn't a pandemic-only stock. Revenue and visits were already climbing in the double digits before the pandemic. And recently, they've continued to advance in the double digits. The company also serves more than half of Fortune 500 companies. And it's won contracts from rivals, thanks to its complete offering to care for the "whole person" through services that include primary care, chronic conditions care, and mental health.
Teladoc sells its healthcare packages to employers and organizations and sells its mental health service, BetterHelp, directly to consumers.
In 2020, Teladoc acquired Livongo, a specialist in the virtual management of chronic conditions. Livongo is a great addition -- but the problem is Teladoc bought the company when valuations were soaring. So the price of $18.5 billion was high. Since then, the value of assets has declined, and the Livongo purchase resulted in goodwill impairment charges at Teladoc.
These charges have reinforced investors' biggest worry about Teladoc: how and when the company will reach profitability.
Working on costs
Today, Teladoc is offering us some clues. The company is working on its cost structure, and part of that has included cutting 6% of its workforce and reducing office space in some locations, moves Teladoc announced last month.
In the earnings call last week, CEO Jason Gorevic said now the company "will pursue growth in a more focused way with the goal of expanding our margins consistently over the next several years, as we march toward GAAP profitability while still achieving attractive and sustainable top-line growth rates."
As a result, Teladoc forecasts a 6% to 11% increase in 2023 revenue to between $2.55 billion and $2.675 billion. And Teladoc predicts 12% to 32% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $275 million to $325 million. This is a shift from the double-digit gain in revenue and a decline in adjusted EBITDA last year.
So this year, Teladoc aims to continue growing revenue but with a clear focus on progressing toward profitability. Teladoc also has progressively increased its cash position to $918 million today.
What should investors do?
Now, the big question comes in two parts: Is the worst over for Teladoc? And, as an investor, what should you do?
It's clear that last year's goodwill impairment charges disappointed investors -- especially since they came in quarter after quarter. These repeated charges have left investors wondering, "will there be another one next quarter?" And that's weighed on the stock.
Today, with Teladoc's shift in focus to favor profit and work on cost structure, there's reason to be optimistic about the company over the long term. That doesn't mean near-term disappointments are over. And any bump along the path could delay the stock's recovery.
TDOC PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.
Still, it's impossible to time the market and pick up a promising long-term stock at its absolute lowest price. Right now, trading at its lowest ever in relation to sales, Teladoc looks cheap.
Cautious investors still may want to hold off and wait for another quarter or two to check out Teladoc's progress. But if you can handle a bit of risk, Teladoc looks like a buy right now. Although headwinds haven't disappeared, the absolute worst could be over for this innovative healthcare player.
