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Talkspace: A Deserved Decline May Have Gone A Bit Too Far

Oct. 04, 2021 10:19 AM ETTalkspace, Inc. (TALK)AMWL, TDOC46 Comments
Vince Martin profile picture
Vince Martin


  • Even by the standards of the SPAC bust, Talkspace has been a notable underperformer.
  • There are a number of good reasons for a decline, including margin compression, sector pressure, and a clear risk to the long-term revenue outlook.
  • Still, a 60%-plus decline does seem potentially overwrought, and there are some potentially transitory factors at play.
  • The short- and long-term concerns are real, but investors willing to catch a falling knife should take a look at TALK stock.
Man having a cognitive behavioral therapy video call with mental health professional

Luis Alvarez/DigitalVision via Getty Images

According to SPACTrack.net, 147 de-SPAC transactions (mergers between operating companies and special purpose acquisition companies) have closed so far in 2021. Exactly two have performed worse than Talkspace (NASDAQ:TALK) stock.

At Friday's close of $3.84, Talkspace stock is off more than 60% from

This article was written by

Vince Martin profile picture
Overlooked Alpha launched April 2022 - subscribe at overlookedalpha.com. Some OA articles are also available here at Seeking Alpha.I've been contributing to Seeking Alpha and other investment websites since 2011, with a general (though far from rigid) focus on value over growth. I got my Series 7 and 63 back in 1999, and watched the dot-com bubble peak and then burst in real time at a small, tech-focused retail brokerage in NYC.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (46)

$1 ++ per share in cash.

on sale.

it did not lose too much cash per quarter.

maybe it should buy back some of its own stock.
Maschuette profile picture
@HCDIP Go the biggest risk to these SPACs is that they need to do a follow up equity offering. If they have a good amount of cash then that shouldnt happen. Having said that, i dont think they will buy back their stock at this time.
@Maschuette they can just do a gesture, like, buy back $5million (2 million shares). or dutch auction with Chairman to back stop, and buy additional shares to signal to the market: share too cheap.
Maschuette profile picture
@HCDIP Go yeah thats fair
crrj profile picture
When tax loss selling takes this to below $1, will they have listing issues to address?
Another example of SPAC investors getting SPANCed but good.

Investors need to learn that SPACs are an investment with a structure similar to a 2 and 20 hedge fund; not a real investment. The cart before the horse means you pay up for the right to own cash until the SPAC can find something to buy and at these prices the sellers are making out like thieves in the night leaving individual shareholders as bag holders.
Maschuette profile picture
@Brucejfern I've been in the unfortunate position of having one of my stocks listed as the worst performer of the day, like TALK is today. And it always amazes me when people feel the need to tell others how stupid they are AFTER something bad happens. If you are so smart then why didn't you tell us this yesterday?
@Brucejfern One look at the game tape and it's perfectly clear not all SPACs are equal.

Take SKIN, for example. It's well up from the SPAC nav. Solidly up.

TALK is interesting and frustrating, both. Digitalization is real. Whether or not TalkSpace can pull matters together and realize its promise is yet to be seen and not for the faint of heart.
Hillandale Advisors profile picture
What a dumpster fire! Go public through SPAC at $10 or $1.4B EV. Now $2 and $100mm EV. Fired CEOs / Founders. Sales not ramping with expenses too high. Seems like a nice 2-3 year call option on exploding global market with good tech platform and market acceptance. What am I missing?
Maschuette profile picture
@Hillandale Advisors I cant believe this crash. 36% drop because of a fired CEO. They've got over 200 million in cash and the market cap is 322 million. B2B is growing like crazy also. It was only a 1/3 of their business but in another year it will be their business. They need to push that harder and stop worrying about the B2C business. Just my opinion though. I doubled down at these low prices. This has to be a market over reaction.
yogatech profile picture
@Hillandale Advisors I bought a very small position at 4ish. Now an even smaller position. I probably will hold to see if I can recover some of my money.

With both co-founders leaving at the same time could be a bad omen for something like accounting irregularities. Ouch, we shall see.
CEO and his co founder just resigned without having a successor lined up, that’s so irresponsible. Good riddance!

Numbers were terrible, I guess I bought too early.

Having said that, maybe the CEO’s departure is a blessing in disguise.

Obviously he was in over his head and if they bring in someone good, does stock on turnaround.

Market is still very attractive but they have clearly execution issues.
Maschuette profile picture
@GwailoHK I agree. Founders usually arn't good CEOs. Let the board put someone in there that can do the job. I bought big into this dip.
I'm holding. I sold a lot of 2.5 April puts before which are basically breaking even now. Still very cheap at this valuation, hope they can find a good CEO soon.
Preserve & Prosper profile picture
Not a viable business model. Acquisition costs to attract new customers are too high to enable the business to be profitable, but if TALK cuts marketing costs revenue will either stagnate or decline.
Maschuette profile picture
@Preserve & Prosper It can be a viable business model if customers have a decent retention. Acquisition costs to bring them on could be level while the number of customers could grow over time which would cause the business to be profitable. In fact, as long as the retention isn't zero then it is a good business model over time. This assumes that they can reach profitability before they run out of cash and have to do an equity fund raising.
Vince Martin profile picture
@Preserve & Prosper I think that's the bear case, but I don't know that it's solely a business model proposition. The nature of these platforms is usually "winner take most", and to me that's the biggest risk. In the space, it does seem like if you're not the winner you're in trouble of winding up in the vicious cycle you cite.
3259 profile picture
15 Oct. 2021
Something I don't understand about TALK: If you're a counselor, and you build a relationship with a client on TALK. Why not just move the client over to meeting on some other video conference app to avoid the cost of TALK? I think apps that sell massage services have had this issue. Ie, the masseuse doesn't need them any more after they build a client base. So what keeps the counselor on TALK?
Maschuette profile picture
@3259 Well if it is business to business (B2B) then the counselor would get paid through the patient's employer which is using TALK. And the patient wouldn't have to come out of pocket either because their employer would be paying it. So it would be for everyone's benefit to use TALK. But otherwise I don't know. This is another reason B2B is the future of this company IMO.
Vince Martin profile picture
@3259 yeah, sites like Wag (dogwalking) and Care.com have the same problem.

I think there are a couple of reasons. Most importantly, I'm sure Talkspace frowns on or even prohibits that, and since you're going to churn clients on average every few months, you're really putting your practice at risk if you get caught. You're also adding some complexity around billings.

My sense (and it absolutely could be wrong) is that the B2C concerns center more on market share than providers hanging up their own digital shingles. Again, could absolutely be wrong.
Wu-Tang-Financial profile picture
Bought in the 5s because I see the dystopian future where we all are assigned a counselor by one way or another and have to have our check ins.

No but really I bought thinking there truly is multibagger potential here as emotional well being is becoming more mainstream and these guys can offer employer benefits, and probably work their way into schools, social services. I think there will be a need for on demand out sourced BHS. They have a good setup for providers to flexibly provide for them. Will people all out abandon traditional office visits, no, of course not. At the same time you’d have to think it’s not unreasonable to think 20% could migrate online and of that online traffic talk should be a top player.

I still think it’ll get there one day for some one, maybe it won’t be talkspace, I obviously jumped the gun
Vince Martin profile picture
@Wu-Tang-Financial your last point I think is dead-on: the market is going to be there. It's a matter of if they can execute.
I don't think buying this is in the 5s was unreasonable, and I definitely think it's possible that winds up being a pretty good trade if they can string together a good quarter or two.
Wu-Tang-Financial profile picture
@Vince Martin yeah i never go full postition to start so I'm looking to average down at some point. My timeline was literally 5-10 years so it'll be fun to see how it plays out
Maschuette profile picture
They just announced another B2B partner. The B2B idea is a winner imo. I can see so many health plans signing up with TalkSpace as a mental health benefit for the company. It is a smaller margin for them but a huge growth opportunity.
Vince Martin profile picture
@Maschuette I think that's an interesting bull case - that you can get to a point where most and maybe all of the valuation is covered by B2B. It's not a huge biz yet - D2E is $10M+ in rev, and IIRC all of B2B this year is like $50M in rev, but I can see the outlines of that argument.
Long-Term Winners profile picture
@Maschuette I like the b2b too and it’s also the reason I bought. Are other competitors like BetterHelp also doing much b2b though? Just wondering on the competition in the b2b scene
Vince Martin profile picture
@Jimtaysg It seems to be pretty similar. BetterHelp is B2C only, but the mystrength Complete launch has a pretty big B2B component, they've touted some initial buyers on that side already. Lyra works with Starbucks.

I haven't seen actual share figures there, and we don't get a breakout from the private companies. My sense is that Talkspace probably is in a bit better position competitively on that side of the business right now, but I think B2B is going to look much like B2C.
Thank you for the article in this underfollowed stock. I've been following since the merger and pulled the trigger last week at 3.9.

Why? I plan to hold for a few years, same as TDOC (my second biggest position). Tele health has massive tailwinds for decades. Mental Health is unfortunately being damaged by Covid policies. TALK (and others) will benefit.

I like that TALK is founder-led and I like the pivot to B2B.

Finally, the valuation is just too cheap to ignore. That's why I don't understand when you wrote 'EV/revenue based on 2021 guidance still is over 3x'?

How cheap do you want a growth stock in a sector with massive tailwinds that grows over 50% to be? EV/ revenue of 3x is too expensive for you? I am baffled. There are few growth stocks similarly cheap, only APPS and GAN come to mind (I own both). I'm really curious.

At this price TALK is also a take over candidate (but I doubt the founders want to sell).
Vince Martin profile picture
@GwailoHK let me flip the question on you: how expensive do you think a company that is losing market share and posting -30% EBITDA margins should be? It's not like they're growing revenue 50%+ in 2022, at least based on their guidance for Q3/Q4.

To be sure, I don't think 3x is ridiculously high, but looking at this business given the top-line outlook and the margin concerns I personally don't see it as ridiculously cheap.
Maschuette profile picture
Good article, thank you for writing it.

I actually have 2 SPACS that have done worse than these listed (not that its a competition). UPH and LOTZ. Long TALk also. I bought several of these falling knives. 3 out of 8 have been profitable. The other 5...not so much. Still holding though.
Vince Martin profile picture
@Maschuette interesting - both those don't appear to be on the SPACTrack.net site, and it looks like both closed this year.

It's really an interesting category - I think there are going to be some knives worth catching with these SPACs. The trading dynamics I think get wonky when they fall after the close, because you have to figure insiders and sponsors get nervous and want to salvage some value. There's a lot of garbage to sift through, to be honest, but there will be some winners.
Maschuette profile picture
@Vince Martin I agree. And it is hard to sift through these SPACs and really know what is going on. So i really appreciate anytime an author looks at one.

The big risk on the SPACs is if they are going to need to raise further funds via stock offering. UPH is the first one I have had that is raising money with a stock offering....and they are doing it at the bottom. $1.75. ugh. I know i am going to have some losers...I just hope some of these pop up well enough to offset those and still have a profit.
Vince Martin profile picture
@Maschuette yeah I saw that on UPH - not good Bob.

I am going to try and cover quite a few de-SPACs going forward here, mostly because I'm planning to try and look through these for my own account (but also because I think there are a lot of interesting stories, particularly among the weaker-performing ones).
Owen213 profile picture
I am the lucky owner of warrants in all 3 of the failed spacs you mentioned. I've been telling myself some of the same stuff you just wrote. Realistically though, it's probably time to face the inevitable sell.
Vince Martin profile picture
@Owen213 it depends on the terms of the warrants but it's a tough case to see $11.50 or whatever the exercise price is for some of these names.
Owen213 profile picture
@Vince Martin actually $talk has the old style 5 yr warrants, they can't be called for cashless at $10. If you're interested in playing Talk, warrants might be the way to go, they're around .70 cents. They'll double before the common.
Vince Martin profile picture
@Owen213 oh right, I knew that, should have thought more before posting a reply, sorry.

yeah, that could be an intriguing trade - doesn't take *that* much of a rally in the underlying when you have that kind of time to expiration.
MikeFromNZ profile picture
Will Q3 benefit from TALK shareholders calling their therapist?
Vince Martin profile picture
@MikeFromNZ we’ll see. If not maybe we can start our own investor telehealth platform called “Seriously, Just Index”.
crazylikebudfox profile picture
Shouldn't your "Case for Staying Away" include the fact ~100mm TALK shares are set to come off lock-up near year end? Where are all of these shares going to go?
Rather than catching a falling knife, the main risk seems to be drowning in a sea of shares set to flood the market.
Vince Martin profile picture
@crazylikebudfox I mentioned the expiration briefly toward the end. Not sure I see that as quite the problem some do - my anecdotal sense is that those deadlines often are much ado about little.
But it does go to the near-term issue: between that and the lack of evidence for a better Q3, not sure why even more bullish investors need to be buying now other than just playing a relief rally.
crazylikebudfox profile picture
@Vince Martin
"my anecdotal sense is that those deadlines often are much ado about little"
These SPACs are averaging ~15% declines on the day of the PIPE registrations alone, and that's typically less than 10% of the FD shares out. They are all toxic, regardless of fundamentals. It's simply supply/demand imbalances.
Vince Martin profile picture
@crazylikebudfox 15%?!?! That was not my sense though I admit I haven't worked through all these yet.
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