Investing in Teladoc Health, Inc. (NYSE:TDOC) is making a macro play for a developing mobile health industry. We will go over the potential of this industry in the coming years and see how well is Teladoc rising on this industry wave. We will also overview the breakeven estimates for the company and see when investors can expect to be looking at a profitable company.
Teladoc provides virtual healthcare services on a business-to-business basis in the United States and internationally.
The stock has gained in popularity because of the 2020 lockdowns, as people were unable to make a doctor's visit and had to resort to online meetings. The stock particularly gained notice when the ARK Innovation ETF added it as a significant holding - currently weighted at 5.88% of the ETF. The main thesis that proponents of the potential for Teladoc's rise outline is that there is an online part of medicine that will grow and is better served by online meetings, and the 2020 jumpstart was an important introductory catalyst.
We can imagine how this can be true. For example: follow-up visits, administrative issues, insurance dealings, and even some basic diagnostics can be easily done online. Further, this saves time both for practitioners and patients because they do not have to make a trip to a clinic. Also, healthcare services are in high demand and a good portion of the systems are still encumbered, giving room to the rise of alternative approaches.
The main question is, whether this phenomenon is temporary, or is there a segment of services that can continuously benefit?
It appears that, to the extent that this approach saves time, without compromising on quality, there will be certain services that will grab hold for the long term. Opponents of this thesis, claim that the bulk of the rise was due to the pandemic, and what will be left off is not enough to sustain a viable business model.
When looking at the global Mobile Health Market, we see that in 2020 the market was US$56.4b and is forecasted to grow by 30% from 2021 to 2030, which should set it at US$805b by 2030. The chart below shows how regions are expected to grow over the years:
Keep in mind, that results might deviate substantially from estimates.
While investors can see a case for the growth of the mobile health market, and telemedicine as a portion of it, it remains to be seen what subset of the market will Teladoc be able to cater to, which is a challenge by itself.
Moving forward, having seen the potential market capacity, we will look at when would Teladoc be able to break profit.
The Road to Breakeven
The US$21b market-cap company posted a loss in its most recent financial year of US$485m and a latest trailing-twelve-month loss of US$763m leading to an even wider gap between loss and breakeven. This is normal for companies that are developing their business and re-investing in growth. What investors hope for, is that the initial losses will result with growth that will put the company above the profit line.
According to the 26 industry analysts covering Teladoc Health, the consensus is that breakeven is quite a ways off. The company is projected to stay negative during 2024, which means that there is quite a lot of development that is needed before investors can be assured that they have a stake in a money making company.
It turns out an average annual earnings growth rate of 57% is expected, which is somewhat buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
Underlying developments driving Teladoc Health's growth isn’t the focus of this broad overview, however, bear in mind that by and large healthcare tech companies, depending on the stage of product development, have irregular periods of cash flow.
This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of initial investments.
Key Takeaways & Next Steps:
Investors that are early to an investment need the company to make up, by providing even higher returns in the future. That is why, sometimes being early is indistinguishable from being wrong on an investment.
While there is a good possibility that some of the telehealth services that were initiated in 2020 are not just temporary, and will grow in the future, it is important to ask if Teladoc is on the way to develop enough of the business in order to be of value to investors.
Unfortunately, breakeven is still some time away and Teladoc may need to find a way to supercharge growth.
There are key fundamentals of Teladoc Health which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Teladoc Health, take a look at Teladoc Health's company page on Simply Wall St. We've also put together a list of pertinent factors you should look at:
- Valuation: What is Teladoc Health worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Teladoc Health is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Teladoc Health’s board and the CEO’s background.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
What are the risks and opportunities for Teladoc Health?
Trading at 39.1% below our estimate of its fair value
Revenue is forecast to grow 12.52% per year
Significant insider selling over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
Simply Wall St analyst Goran Damchevski 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.
Goran is an Equity Analyst and Writer at Simply Wall St over 4 years of experience in financial analysis and company research. Personally, Goran has over 4 years of experience in financial analysis and company research, where he previously worked in a seed-stage startup as a capital markets research analyst and product lead and developed a financial data platform for equity investors.