Teladoc Health (TDOC +0.19%) has taken investors on a roller-coaster ride over the past few years. During the earliest days of the pandemic, the telemedicine giant soared, along with its revenue and virtual visits, as people favored staying home. Then the shares declined in more recent times as investors worried about the company's ability to reach profitability.
The company heard those concerns, and last year, it set to work on a plan to cut costs, boost efficiency, and balance the quest for revenue growth with the quest for profitability. That helped Teladoc report its "most profitable" year ever in 2023, according to Chief Executive Officer Jason Gorevic, as the company grew adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) 33% and delivered free cash flow of almost $194 million.
Still, the shares sank in the double digits in one trading session after the company's tepid forecast for 2024.
Now you may be wondering if you should stick with this recovery story -- or is it time to sell? Let's find out.
Image source: Getty Images.
A reliable revenue stream
First, some background on this telemedicine giant. Teladoc is an industry leader, serving more than half of the Fortune 500 companies, and its global client base of 90 million members offers it a reliable stream of revenue. The company focuses on "whole person" care, providing members with every aspect of healthcare from primary care to specialists.
This is the integrated-care service that's sold to organizations and companies looking for healthcare plans. Teladoc also has a mental-health business BetterHelp, which is sold directly to individuals.
Though the company's revenue has climbed over the years, its main challenge has been turning that into profit. The launch of its new strategy has been bearing fruit but hasn't changed certain elements that may weigh on Teladoc in the coming months and years.
In this week's earnings call, the company said most healthcare consumers already have access to virtual urgent healthcare these days, and many players exist in the market. Teladoc can grow by taking market share, as it's already done, but growth ahead may be limited. The company said it expects revenue growth of its virtual-care offerings to advance in the low single digits in the U.S.
That said, sales of chronic-care products and margin expansion should offer more growth in the near and longer term. For example, average chronic-care revenue growth could come in at mid- to high-single-digit levels, Gorevic predicts.
NYSE: TDOC
Key Data Points
Limiting revenue growth
Still, considering all factors, Teladoc expects the integrated-care segment to deliver mid-single-digit annual revenue growth during the coming three years. Meanwhile, BetterHelp's growth might be limited by Teladoc's strategy to balance revenue with the path to profitability: The company has restricted the amount of capital it can deploy for new member acquisition in order to keep costs in check. So Teladoc expects low-single-digit revenue growth from BetterHelp over the next three years.
All of this is a far cry from the triple-digit-revenue increases investors saw during the early days of the pandemic. But is this is a reason to sell Teladoc shares? Not necessarily.
It's true that the telemedicine market may not be the El Dorado it was a few years ago. Today, Teladoc and others have conquered a lot of territory, and that means growth may not happen at the same rapid pace. Meanwhile, Teladoc has made the path to profitability a priority, so it will have to sacrifice some revenue growth to get there.
The long-term buy case
All of this could weigh on the stock in the near term, but over the long term, Teladoc still could score a big win. The company is a leader, has a solid source of revenue from its core customers, and has a key growth driver in chronic care -- nearly half of Americans suffer from at least one chronic condition, making expertise here a significant plus for the company.
At the same time, it's important to remember Teladoc's progress since launching the new strategy a year ago. For the full year, the company reported gains in consolidated adjusted EBITDA, as mentioned above, and the free-cash-flow figure of nearly $194 million compares with about $16 million in the prior year. The company also finished the year with more than $1.1 billion in cash. And its efficiency efforts should drive $85 million in annualized cost savings by the end of this year.
For the patient, long-term investor, there's reason to hang onto Teladoc shares. For aggressive investors, the recent decline in Teladoc stock represents a buying opportunity.
