Teladoc Health (TDOC +5.05%) is finally getting some love from investors. After a catastrophic performance on the market in 2022, the telemedicine specialist has been rebounding since the beginning of the year. The company's latest quarterly report was also well-received by the market, which helped jolt its stock further.
But might these positive developments be temporary? Before jumping on the bandwagon, it's essential to look deeper into Teladoc's operations and determine whether the company has solid long-term prospects. Let's examine whether Teladoc has managed to move beyond the headwinds that haunted it last year.
NYSE: TDOC
Key Data Points
Teladoc's first-quarter report was encouraging
Teladoc released its first-quarter earnings on April 26. The company showed progress in several areas. On the top line, the telemedicine expert saw its revenue increase 11% year over year to $629 million. Teladoc's top-line growth this time around seems unimpressive compared to the past two years.
TDOC Revenue (Quarterly YoY Growth) data by YCharts
But here are two things to consider. First, the company's revenue came in ahead of analyst estimates. Second, Teladoc's business experienced a boost during the pandemic, something that has now subsided. This context helps put a different spin on things.
Here's another major area of improvement for Teladoc: the bottom line. Last year, investors sold off Teladoc's stock as it kept recording significant net losses due to non-cash impairment charges. The company seems to have put this issue in the rearview mirror. In the first quarter, its net loss per share came in at $0.42, compared to a net loss of $41.58 in the first quarter of 2022. Teladoc expects to lose between $1.70 and $1.25 per share for 2023.
Teladoc showed improvement in other areas, too, including total visits and enrollment within its BetterHelp therapy service and chronic care unit. The former saw its paying users increase by 22% year over year to 467,000. Teladoc's chronic care enrollment jumped by 13% year over year to roughly 1 million. Overall, it was a solid quarter for the telemedicine specialist.
Looking beyond the next 12 months
It's always good when a company records results above what was expected. But one quarter of impressive earnings isn't enough to make any company's shares a buy. The more important question is whether there are signs that Teladoc can be successful in the long run. In my view, the answer remains a resounding yes. Here is why.
Consider the company's excellent adjusted gross margin in the first quarter, which came in at 69.8%, compared to 66.9% in the comparable period of the previous fiscal year. This isn't a one-off either; Teladoc's gross margin is consistently above 60%.
TDOC Gross Profit Margin (Quarterly) data by YCharts
This implies that the company's production costs aren't very high. Yet, Teladoc remains unprofitable. What gives? The company's largest expense category (by a reasonably large margin) is advertising and marketing.
It was also the fastest-growing expense for the first quarter, save for restructuring expenses related to Teladoc's efforts to decrease costs. This makes sense. Teladoc is still in the relatively early innings of its growth story, which is why advertising is such an important part of its business right now. Teladoc needs to build an ecosystem of patients and providers, and it is doing precisely that.
Thanks to these marketing efforts, Teladoc's BetterHelp and chronic care programs have been on the rise. Further, there remains plenty of whitespace in the telemedicine industry, even given the boost it received in the early days of the pandemic. According to Grand View Research, the industry should register a compound annual growth rate of 24% through 2030.
It could keep growing long after, given the convenience of telehealth. Once Teladoc becomes a more mature company with a much larger network, the company's advertising and marketing costs will drop, which should work wonders for the bottom line. In my view, that's the most promising part of the company's business right now; despite a significant slowdown from the earlier days of the pandemic, Teladoc is still growing its total visits and overall enrollment.
Focus on the long term
Predicting how things will unfold over the next few months is impossible. Maybe Teladoc's recent run will continue, or perhaps it won't. Given its much better bottom-line metrics, investors should expect Teladoc to perform much better than it did last year from here on out. So I believe the worst is in the rearview mirror for the telehealth company.
But even more importantly, Teladoc's attractive gross margin should help deliver profitability once customer acquisition costs decline. That's what investors should look forward to now. And with a forward price-to-sales ratio of just 1.7 (under 2 is good), Teladoc stock looks attractive at current levels, making it a buy for long-term investors.
