Teladoc Health (TDOC 1.16%) was a pandemic stock, meaning a company whose business was well-positioned to perform well during the worst of the coronavirus outbreak. Since it offers virtual health services, including basic consultation with doctors and therapy services, patients turned to the company in large numbers when government-imposed measures forced them to stay home.
However, Teladoc has not performed well since it reached its all-time high in early 2021, and since then, the stock is down by 96%. Is the telemedicine specialist finally attractive at current levels, or is there little hope for a turnaround? Let's find out.
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What went wrong?
Teladoc Health couldn't keep up the pace of virtual visits and membership growth it had during the early part of the pandemic. As demand for its services slowed with the return to in-person care, its revenue growth declined.
One of Teladoc's most important growth drivers was its BetterHelp virtual therapy segment. But this service came with high customer acquisition costs. Not only did these expenses continue to weigh on Teladoc's bottom line and margins -- the telemedicine company remains unprofitable -- but worse, its marketing efforts stopped yielding positive results, partly due to stiff competition.
BetterHelp has been losing members. In the second quarter, the segment's paying members declined by 5% year over year to 388,000, and its revenue decreased by 9% year over year to $240.4 million. That's 38% of the company's total revenue moving in the wrong direction.
Furthermore, although Teladoc's integrated care business is still growing in terms of members, the segment's average revenue per member is declining; it dropped by 7% year over year to $1.27 in the second quarter. The result: Teladoc's top line for the period was down 2% year over year, to $631.9 million.
Can Teladoc overcome the challenges?
Several opportunities could help Teladoc bounce back. For instance, the company has turned to acquisitions to help improve its virtual therapy segment.
In April, it acquired UpLift, a company that provides virtual therapy and psychiatry services, for $30 million in cash. Importantly, UpLift has partnerships with various health insurance providers covering more than 100 million people, between policyholders and their dependents. These patients could access virtual therapy services through UpLift at a low cost (or no cost). However, based on the platform's $15 million in revenue in 2024, the overwhelming majority aren't doing so yet.
Still, this is precisely what Teladoc was seeking. Its own BetterHelp service isn't covered by insurance, which may well be one reason it hasn't been as successful as it would have liked. Patients who have to pay out of pocket tend to be less willing to opt for a service than those who are covered by insurance. If Teladoc directs some of its marketing efforts toward UpLift and its 100 million potential customers, the company could see stronger membership growth.
Then there are Teladoc's international expansion efforts. Overseas revenue has been growing much faster than that in the rest of the business; in the second quarter, it increased to $112.2 million, a 10% rise compared to the prior-year quarter. If Teladoc can maintain that momentum while staging a rebound for its virtual therapy segment, top-line growth could accelerate, and the company could eventually turn a profit. But how likely is that?
International expansion may seem like an attractive opportunity for now, but it could also strain the company's resources. Even with higher revenue from these efforts, it's not clear that Teladoc would be able to turn a profit. And while its acquisition of UpLift might seem promising, even with the platform's 100 million covered people, it's worth reiterating that only a tiny fraction of them have opted for the services it offers.
Teladoc Health is a larger company with deeper pockets, and might be able to reach more patients with its marketing efforts than UpLift was able to do on its own. However, until we see some tangible results, it's hard to bet on Teladoc achieving that. In short, the stock remains too risky for most investors. It's best to watch from the sidelines for now.
