The company’s prospects are looking increasingly bleak.
Was Teladoc Health (TDOC -3.06%) just a one-hit wonder? After making a name for itself in the early days of the pandemic, the telemedicine specialist has been in a freefall for the better part of three years. Revenue growth has been slow, at best, net losses have been catastrophic at times, and the market is losing faith in its long-term prospects. Teladoc’s shares are now well below their pre-pandemic levels. Can the company bounce back? Or should investors stay away? Let’s find out.
What went wrong with Teladoc?
Teladoc faced several issues as its pandemic-related tailwind came to a screeching halt. First, revenue growth slowed — considerably. In the second quarter, the company’s top line came in at $642.4 million, decreasing 2% year over year. Maybe it isn’t surprising that Teladoc wasn’t doing as well on this front. Due to government-imposed lockdowns and patients’ own fears of catching COVID-19, many felt they had no choice but to resort to telemedicine in 2020 and 2021. That’s no longer the case.
However, Teladoc’s declining revenue growth rates were also due to mounting competition, especially within its BetterHelp therapy segment. The company engaged in aggressive marketing efforts that did not yield the expected results because other virtual therapy providers were taking some of its market share away.
Second, Teladoc still isn’t profitable. Worse, it recorded several catastrophic bottom-line numbers in the past two years. In the second quarter, Teladoc’s net loss per share was $4.92, compared to a net loss per share of $0.40 reported in the year-ago period. True, that was due to a noncash goodwill impairment charge related to future cash flows within its BetterHelp segment. This charge accounted for $4.64 of Teladoc’s net per-share loss. The company would be close to profitability if not for this, but that has been true for quite a while.
Should investors keep waiting for green on the bottom line, especially as its top-line growth rates deteriorate? This uncertainty is not helping Teladoc’s performance.
Could a rebound be in the cards?
Teladoc does have some things going its way. It still looks as though telemedicine is here to stay. The company still has a deep ecosystem that could allow it to build a network effect — it boasts more than 92 million members in its integrated care unit (including general and primary care services). And Teladoc’s business still has high gross margins. In the second quarter, the company’s adjusted gross margin was 70.7%, slightly down from 70.8% recorded in the prior-year quarter.
The company’s marketing and advertising expenses remain among its highest as it seeks to grab a large share of its market. If it can succeed and rely less on marketing to attract clients while it is better established, its expenses will fall, and profits will rise. That’s a big “if,” though, and so far, Teladoc hasn’t proven it can pull that off. And the fact that it is still not growing its revenue at a decent clip is cause for concern.
Teladoc recently appointed a new CEO, Charles Divita, who took the helm in June.
Perhaps the new head of the company will steer the ship in the right direction, but it’s too early to say for sure. The bottom line is this: While Teladoc could recover, provided it can take advantage of the opportunities in telemedicine while keeping its expenses in check, the stock looks somewhat risky. Long-term investors with an appetite for risk should consider the stock, especially as its share price remains below its pre-pandemic levels. Risk-averse investors, though, should look elsewhere.