When a stock you own is down, it's easy to think things are going wrong. But assessing how well the company is executing on its strategy can also be a great indicator of performance.
After all, management can only control what it does, not how the market reacts. If things are going according to plan, it could pay to hold shares until Wall Street catches on.
But what if the strategy itself is flawed? The stock of telehealth pioneer Teladoc Health (TDOC -2.40%) has been crushed, falling 90% since its peak at the beginning of 2021.
There are well-documented reasons. But it seems to be following through on the strategy it has communicated. That might mean Wall Street thinks the business model is broken.
A year ago, CEO Jason Gorevic laid out Teladoc's priorities. The first was increasing the participation and integration in its virtual primary-care offering, Primary360. Another was expanding its mental health services to meet the growing demand. Lastly, he pointed to enhancing its chronic-care capabilities to be more impactful for clients and members. Let's break them down one at a time.
Expanding access to primary care
In 2021, the Kaiser Foundation released a report showing nearly 84 million people in the U.S. lived in an area with a shortage of primary care. To address the need of its large, geographically dispersed clients, Teladoc launched Primary360. After successfully piloting its virtual primary-care program in 2020, it has continued to gain traction.
For 2023, management estimates revenue for the service will triple compared to last year. And it will handle at least five times the number of visits. This program is also supporting Teladoc's goal of whole-person care. Members with a chronic disease are four times as likely to use Primary360. As far as executing on this strategy, management is on track.
A two-pronged approach to mental health
Mental health is another area of need in the U.S. Gorevic has said that half the people in the U.S. in need of mental-health care don't get it. Teladoc offers two ways to fill the gap: a service for individuals and for businesses.
BetterHelp is its direct-to-consumer (DTC) service. It delivered more than $1 billion in revenue last year. Not bad for an app that was purchased for $17 million in 2015. More importantly, it served over 1 million patients. Many might not have sought care at all without a virtual option. Paying users grew 37% over the prior year.
Unlike DTC, business-to-business (B2B) is the sale of services -- including access to mental-health care -- to large organizations like employers, insurers, and health systems that then offer the services to their own employees or members.
Teladoc recently changed how it reports results to better reflect the suite of products it offers through this channel. While the DTC business was booming last year, members in the B2B segment -- called integrated care -- grew only 7% to 83.3 million. To be fair, that's up from just 36.7 million heading into the pandemic. Both channels have grown a lot over the past few years.
Managing chronic disease with data
The third part of the company's strategy is to make its chronic-care programs more helpful for its B2B clients and their members. Enrollment in those programs exceeded 1 million last year, 16% higher than the year before.
But that's a far cry from what was envisioned in 2020 when it made the $18.5 billion purchase of digital chronic-care management company Livongo. At the time, Livongo revenue was doubling each year.
Still, there are reasons to be hopeful. Despite tepid growth overall, chronic care was called out as a bright spot in 2022. Also, 30% of enrollees are using more than one chronic-care service, showing that it's delivering value for members. As for the employers, health systems, and insurers that sign up to offer the services to employees and members, they get a 3-to-1 return on investment on the diabetes program when it comes to costs of care, according to Gorevic.
The biggest benefit is in the bundle of services Teladoc offers. The combination of primary care, mental health, and chronic-disease management has kept Gorevic excited about the strategy. And it's what is keeping investors interested.
After piecing together some acquisitions, Teladoc has finally integrated the services into the whole-person platform it has been promising with a single log-in for members to access whichever services they need. It's a compelling idea. But can it make money?
Profits are an opinion, cash is a fact
No one can blame Teladoc for going all out to take advantage of the opportunity during the pandemic. A once-in-a-lifetime catalyst accelerated the company's long-term strategy but wreaked havoc on its financials. But things should be settling down now.
And its scale has dramatically increased. That should be good for profits -- or at least cash flow. But despite the growth in members and revenue, the percentage of those sales that turn into cash appears to be stalled.
Data by YCharts. TTM = trailing 12 months.
So cash flow from opertions was only 7.9% in the trailing-12 month period. And the operating margin has never been positive over a 12-month period. Wrapping up 2022, Gorevic seemed keenly aware of the concern. He forecast a more balanced approach as the company worked toward profitability "in the next several years."
That's a long time. Especially with the high end of management's estimates for 2023 calling for revenue growth barely in the double digits. A lack of cash flow is an understandable risk when the company is growing like gangbusters. It's a red flag when it isn't doing that.
With a platform of healthcare services that are desperately needed in the U.S. and are valuable to customers, the company has found a product the market wants. But Wall Street is skeptical that Teladoc can make money. With paltry top-line growth and stagnating cash flows, I am, too.
