Last year was a tough one for Teladoc Health (TDOC +4.17%) and its investors. The telemedicine giant reported billion-dollar goodwill impairment charges -- and the path to profitability seemed to add on some extra miles. Then, at the start of this year, Teladoc announced a new strategy of sorts.
The company started by cutting some jobs and office space and said the plan was to balance the growth of revenue and profit. This is instead of focusing primarily on growing revenue. Teladoc this past week reported first-quarter consolidated adjusted EBITDA and margins that beat the company's guidance. Does this mean Teladoc's strategy is already working? Let's find out.
Yesterday's Teladoc
First, let's look at the Teladoc of the past. The company saw its revenue and visits soar in the triple digits in the early days of the pandemic as people favored telemedicine visits over traditional ones. Around the same time, Teladoc bought chronic care specialist, Livongo.
The deal offered Teladoc significant chronic care assets -- but market declines that followed weighed on their value. And as a result, Teladoc reported $13.4 billion in non-cash goodwill impairment charges last year. Those assets eventually may pay off for Teladoc since chronic care is a key growth area for the company. But in the meantime, the acquisition has put the brakes on the company's march to profitability.
At the same time, Teladoc has faced the challenge of operating in a difficult economic environment -- one that involves potential customers watching their spending, for example.
NYSE: TDOC
Key Data Points
Fast forward to today. Teladoc offered investors plenty of good news from its first quarter.
"Year-to-date trends have increased our level of confidence in the outlook for the rest of the year in both the BetterHelp and Integrated Care segments," chief executive officer Jason Gorevic said during the earnings call.
Integrated Care is the full membership program offered to companies and organizations. BetterHelp is Teladoc's mental health service that people can subscribe to directly.
Growth in BetterHelp membership and Integrated Care's chronic care programs helped drive the quarter's EBITDA and margin performance. Expense control also helped the company beat expectations in these areas.
Bets that are paying off
Teladoc's bet on offering Integrated Care members "whole person" care is working -- the company reported high interest in that feature during the quarter. And Teladoc's bet on BetterHelp is scoring a win too. The unit's revenue also surpassed guidance.
So, it's clear Teladoc's plan already is leading to some progress. Of course, the job cuts and other measures have resulted in expenses. For example, the net loss per share includes $8.1 million in restructuring charges -- and some of this is linked to severance packages. But Teladoc, as mentioned here, has reported some encouraging numbers and trends.
Now the big question is: What does this mean for investors? Teladoc still has a way to go to transform its revenue growth into profit. But the company has the tools it needs: market leadership, compelling products, and now, a focus on paving the way to profitability. Expense control helped it beat expectations in the quarter -- but, importantly, so did gains in its businesses.
Should you buy?
You're probably wondering if you should buy this telemedicine giant now -- or wait to see another quarter or two of earnings. This depends on your comfort with risk. If you are a very cautious investor, you may want to wait before diving in. The stock has climbed about 12% this year, but it remains very far from its record high.
But if you can handle some risk, you'll want to consider Teladoc's valuation right now. The stock is trading close to its lowest ever in relation to sales.
TDOC PS Ratio (Forward) data by YCharts
That looks dirt cheap as we look at Teladoc's performance this quarter and future prospects. We should keep in mind that telemedicine is a high growth area, set to expand in the double digits in the coming years. Teladoc should benefit from that.
All of this means Teladoc offers investors a solid buying opportunity right now -- and the potential to follow the company on an exciting long-term growth story.
