Stock Analysis

Investors may want to Keep an Eye on Spending at Teladoc Health (NYSE:TDOC) as Revenue Growth Normalizes

  •  Updated
NYSE:TDOC
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Teladoc Health, Inc. ( NYSE:TDOC ) managed to beat top and bottom estimates during the third quarter. The market’s reaction was positive, with the stock closing 7.6% higher on Thursday. It’s worth keeping in mind that estimates have been revised lower throughout the year  and while revenue growth is set to normalise, growth in spending may continue to lengthen the path to profitability. At this point there is still a lot of uncertainty about the next few years.

Third quarter highlights included:

  • Revenue grew 81% to $521 million, $4.87 million ahead of estimates.
  • GAAP net loss per share of $0.53, $0.13 better than estimates.
  • Total visits in the quarter were up 37% year-on-year to 3.9 million.
  • 2022 revenue is expected to be about $2.6 billion, approximately 30% higher than 2021.

View our latest analysis for Teladoc Health

Teladoc became a market favorite in 2020, and gained prominence as a top holding in several ARK Invest funds. Early this year the stock became overhyped and the price became detached from the fundamentals, trading as high as $300. Since then reality set in as expenses rose, it became clear that growth was being driven by the acquisition of Livongo, and the potential for organic growth became difficult to assess. The stock price has since dropped 56% from February’s highs and is down 30% for the year.

Teladoc’s Valuation

Our estimate of the intrinsic value for Teladoc Health is $197.93, implying that yesterday’s close offered a 24% discount. However, this estimate is based on expected cash flows and is only as good as those estimates. As mentioned, analysts have been revising their estimates lower throughout the year - and we need to consider the possibility that estimates continue to fall. The following graphic illustrates how wide the range of EPS estimates for the next two years is.

earnings-per-share-growth
NYSE:TDOC Earnings Per Share Growth October 28th 2021

One of the reasons for the uncertainty is Teladoc’s rising expenses. The income statement below reflects expenses, excluding cost of revenue, that have increased by 103% over the last year.

NYSE:TDOC Income Statement from SEC filing October 28th 2021

In particular the following line items contributed to increased spending and a widening net loss for the company:

  • Advertising and marketing up 112%
  • Sales up 167%
  • Technology and Development up 168%
  • General and administrative up 72%

The Bottom Line

Telehealth makes sense for several reasons as we recently outlined , and on paper Teladoc should turn out to be a great investment - eventually. The company also has a strong balance sheet and enough cash to keep it going for the next few years. 

Like several new industries, the Covid-19 pandemic caused adoption of telehealth to accelerate. But the future rate of adoption is difficult, if not impossible, to forecast. And the amount Teladoc will need to spend on marketing efforts is also unknown.

The bottom line is that one cannot forecast Teladoc’s profitability over the next few quarters with any certainty - which means continued volatility is a likely scenario until a more stable trajectory is in place. 

This article is not intended to be a comprehensive analysis on Teladoc Health, but rather to highlight the uncertainty over the immediate future. If you are interested in understanding the company at a deeper level, take a look at Teladoc Health's company page on Simply Wall St .

If you are looking for other potential growth stocks to invest in, have a look at this  free list of these great stocks here .

Valuation is complex, but we're helping make it simple.

Find out whether Teladoc Health is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Richard Bowman

Richard Bowman

Richard is an analyst, writer and investor based in Cape Town, South Africa. He has written for several online investment publications and continues to do so. Richard is fascinated by economics, financial markets and behavioral finance. He is also passionate about tools and content that make investing accessible to everyone.

About NYSE:TDOC

Teladoc Health

Teladoc Health, Inc. provides virtual healthcare services in the United States and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation6
Future Growth1
Past Performance0
Financial Health5
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Very undervalued with excellent balance sheet.