Teladoc, a pandemic darling, once praised for its revolutionary business model & great potential is now down over 50% from 52-week highs on fears of reopening viability. This overreaction to the prospect, and a misunderstanding of the long-term shift that the pandemic has created leads to a bargain-bin price on a great company!
On just a historic basis, we can see a clear overreaction by investors on Teladoc’s viability…
The company has more than tripled revenues since the end of 2019, and is continuing to grow at an incredibly fast clip. The corresponding share price however, does not reflect this business improvement. The share price has gone up about 66% since the end of 2019 - leading to a serious opportunity, with the company being at an opportunistic price compared to its historical valuation. Additionally, the company shows no signs of tanking that would reflect the share price:
109% yoy growth in Q2 (41% on an organic basis)
Increased full-year guidance, clearly showing management confidence in the overstated nature of headwinds
They posted a 28% yoy increase in telehealth visits - that was also a tough comp based on the previous period being directly in the pandemic, with everyone locked down
This shows the longevity of the value proposition, and undermines this idea that teladoc will lose substantial business from reopening
Additionally, when you buy Teladoc, you aren’t only buying into a telehealth leader, but also a chronic disease management platform through its recent merger with Livongo. Livongo’s care leads to improved health outcomes & savings on healthcare spending. The market opportunity is clear:
There are 147 million adults in the U.S. that have a chronic condition with 40% having more than one
These patients account for 90% of healthcare spending each year.
Livongo’s app provides an app that tracks blood pressure, blood sugar levels, weight data, and many other health metrics.
Patients who use the app saw a 0.8-point improvement in blood sugar levels, a 10-point improvement in blood pressure, and 7.3% weight loss. In addition, 55% of patients reported a decrease in depression and anxiety after use.
All combined, the average patient saved over $1,900 annually in medical bills due to these reductions.
This value proposition becomes all the more clear when we consider that the # of Livongo Suite members grew 45% yoy.
Additionally, on a valuation basis, you’ve got a company that is poised to continue growing at a clip of 30% a year, after two phenomenal years of 80% growth… All of this for a measly p/s of 14. This compares favourably to industry comparisons, with any company doing 30% next year growth, trading at least for 25 p/s:
Twlo: 31% sales growth + 27 p/s
Docu: 30% sales growth + 30 p/s
The biggest concern for Teladoc on a comparative basis seems to be its lack of profitability. Though Teladoc has been essentially burning cash for a while, it is all in the name of investments for future growth & profitability. The company essentially tripled in two years, which obviously caused a shock & a need for oversized investments to accommodate. Luckily, management seems confident that they will be lowering cash burn moving forward.
Overall, though this is an unprofitable company, you get a position in the leading company in a transition of the entire healthcare system, with rapid growth at a bargain valuation. The questions of profitability do weigh on the stock, but over the long-term, I expect them to realize serious profitability as they convert their 70% gross margins into profit (primarily by not having to conduct as much advertising & platform building as they mature).
With this company, I recommend a smaller, long-term position, with the idea that within a few years you could realize serious share appreciation as its profitability comes to light.
By: Mateo Gjinali
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