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Teladoc Health Needs A Wellness Check

Oct. 05, 2021 4:35 PM ETTeladoc Health, Inc. (TDOC)27 Comments
Brian Kapp, CFA profile picture
Brian Kapp, CFA


  • Teladoc is now down 17% since reporting Q2 2021 results on July 27, 2021, as growth and profitability concerns take center stage.
  • The extreme dispersion amongst the company’s various profitability measures raises red flags regarding its quality of earnings.
  • Organic revenue growth is slowing rapidly while the company’s increasingly stretched balance sheet may begin to limit its ability to grow through acquisitions.
  • The current valuation is elevated on all counts creating a heightened level of risk for the shares.
  • Teladoc deserves to be on the watch list of all growth investors as it envisions becoming the category-defining provider of whole-person virtual healthcare.

Video call with doctor.

VioletaStoimenova/E+ via Getty Images

I am assigning Teladoc Health, Inc. (NYSE:NYSE:TDOC) a negative risk/reward rating based on the weak cash flow generation of its business model, signs of slowing demand, an elevated valuation, and the heightened execution risk of its acquisition strategy.

Source: Created by Brian Kapp, stoxdox

Source: Created by Brian Kapp, stoxdox

Source: Created by Brian Kapp, stoxdox

Source: Created by Brian Kapp, stoxdox

Source: Created by Brian Kapp, stoxdox

Source: Created by Brian Kapp, stoxdox

Source: Seeking Alpha. Created by Brian Kapp, stoxdox

Source: Created by Brian Kapp, stoxdox

Teladoc 10-year monthly chart

Teladoc 2-year daily chart

This article was written by

Brian Kapp, CFA profile picture
I am the co-founder and CEO of stoxdox, Inc., a universal platform for professional quality stock and investment research. I started in the investment industry in 1996 and spent the first half of my career as a portfolio manager at Merrill Lynch then UBS Financial Services. Later, I founded and served as the portfolio manager at both Kapp/Scanlon Financial Group and Oasis Capital. I am a CFA® charterholder and earned a BS in Industrial Management and a BS in Economics at Carnegie Mellon University. My experience combined with a strong foundation in strategic management and economics offers a uniquely full-spectrum, full-cycle, and global perspective.

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. 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 (27)

bengalesq profile picture
I made specific note of this article around the time I sold. Good article. I think that users only up 2-5M in 2 years and margins to be further compressed with competition do not sound positive. Pepsi moving on b/c of limitations in the platform (no med histories) was a sign for me. Stock based compensation if a further problem, and the more the stock price falls the more shares they need to issue. Spent the last hour talking myself out of buying the plunge here. I do not see a turnaround and do not see the value here at $33 as compelling.
Thank you for confirming the bottom was in. I wait for more bearish articles for future confirmation
bengalesq profile picture
Really great article I just stumbled on here. Thanks. Will follow and hope to see more going forward.
Flex68 profile picture
I've rarely read a more in-depth offering over the past 5 years.

Well-done, author.

I don't think that TDOC is a poor stock, just one that got overvalued pretty quickly.
Brian Kapp, CFA profile picture
@Flex68 Thank you. I appreciate your feedback.
All of your articles so far have a negative risk/reward rating. Is there anything you're positive on?
Brian Kapp, CFA profile picture
@HappiDay I was just discussing that yesterday. Positive ratings are more enjoyable to work on. I hope to add many of them soon. The energy sector (oil and gas) offers great relative valuations and appears to be early in a bull market (industry supply and demand is the healthiest it’s been in a long time). Various mining sectors also have great valuations and strong fundamentals. Generally speaking, the positive ratings right now revolve around stocks where low expectations are built into current valuations leaving room for large upside surprises (across all sectors).
@Brian Kapp, CFA thank you for the response. Looking forward them.
Nice job of presenting a full and honest analysis of tdoc.
Brian Kapp, CFA profile picture
@jeffk100 Thank you, Jeff. I appreciate your feedback.
Where’s c wood . Her etf has been sold out so as her long position
Brian Kapp, CFA profile picture
@heung Looks like she may be adding to TDOC at these levels. Granted, she is not exactly a stickler when it comes to price.
@Brian Kapp, CFA she originally bought in the $200’s. Her team recently did a report on their discussions with TDOC management and since then has been buying more hand over fist.
This is ripe to sell-off/short right now as the numbers will be pretty stagnant until CQ1 2022 when we should see all the new big contracts for 2022. When Wall Street knows that good news is a while away, they can take advantage of a stock in the short term, happens all the time. I would expect to see this start reversing hard in December as they have announced new contracts and when they expect to it.
Brian Kapp, CFA profile picture
@Tdog88 I agree, Q1 2022 should offer a catalyst for the shares either way. Should be choppy in the interim.
I don’t understand the caution around using adjusted EBITA. Do you think TDOC will be paying for Livongo for infinity amount of time?

Also don’t understand the worry over slowed revenue from visits. Isn’t that exactly what derisks TDOC? Visits will undergo pricing pressure, membership utilization will not(which is the segment of revenue increasing rapidly). Isn’t it a strength that the company could grow 80% this year even tho visit growth slowed from incredibly difficult comps, and membership growth was largely flat? Wouldn’t the runway be whatever growth happens when membership picks back up in 2022 after 2020 demand pulled forward into 2021? Why would I be worried that visit fees will continue to contribute less and less by % to TDOC’s top and bottom line?

Lastly what do you mean by “low margin business”? Their gross margins are 70%
Brian Kapp, CFA profile picture
@Rleaton The adjustments that Teladoc makes to EBITDA look to be actual expenses to me. This is supported by adjusted EBITDA being so much higher than cash flow from operations. Cash flow and EBITDA appear to capture the economics of the business model better, in my opinion. I agree with a lot of your points. Organic growth looks to be slowing to 25% from 40% in the just reported quarter. If they stabilize the growth rate and expand margins, I think it could be a great opportunity.
@Brian Kapp, CFA well I mean, yea SBC is an expense. Hence why standard EBITDA looks so bad. But that’s by far their biggest expense.
That’s expected to stabilize after 2022.

Maybe you are right and shares test 100$. That would be an insane buying opportunity given that would represent a market cap of less than what TDOC paid just for Livongo.

That said be careful using that 25% growth number from this quarter and projecting that forward. TDOC announced last quarter one of the biggest deals in its history, and those members won’t start hitting their top and bottom lines till 2022
Brian Kapp, CFA profile picture
@Rleaton I agree that growth could show upside in 2022. If so, this correction could turn into a great opportunity.
The issues with cash flow and profitbality remind me of many disruptive companies in their early years. They focus on growth and not pleasing the investors with profitability - they look 5-10 years down the line instead of 6-12 months. Teladoc is no different, with rising healthcare costs, there will need to be multiple ways for companies to reduce their expenses. Teladoc is a major way to do that. It’s early in the telemedicine cycle, I get it, and profitability will take a while, but I think the bigger risk is not taking advantage of this stock price before the market catches on. Would take another big market drop to fetch this at $100, but if it does end up there, buyers will flock like never before because if you think it’s too cheap now, at $100 it’s just a steal unless you think telemedicine will fail and teladoc will go bankrupt. Anyway, super long Tdoc and waiting patiently to accumulate more, average SP $139.
They're not alone on their drop from overvalued levels. AMWL hit 43.75 after their IPO, and now sits at 8.35.
Would like to buy TDOC at $100.
Brian Kapp, CFA profile picture
@Gerry_Che Looks like it wants to give $100 a test.
joeldadrummer profile picture
Earnings this month will be key
Livongo alone is worth the price of Teladoc right now.
DONTIGNY profile picture
Congratulations for a well written piece. I appreciate you focused on cash flows. This is the truth teller and software aficionados don't spend enough time on cash flow analysis.

Stock based compensation is a problem. Hoping to see normalized level by YE22 and durability of revenue growth. If consensus is right, there is an opportunity for FCF.

I believe in Jason's ability to lead and execute. Health tech is a hard business.
Brian Kapp, CFA profile picture
@ggdontigny Thank you. I appreciate your feedback. I agree, healthcare tech is hard. Love the Teladoc brand opportunity in the space longer term.
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