Teladoc: Scary Times
Summary
- Teladoc Health’s stock plunged after earnings release.
- Slashed 2022 guidance and big impairment charge indicate business problems.
- The valuation is still too high.
10'000 Hours/DigitalVision via Getty Images
The stock price of Teladoc Health Inc. (NYSE:TDOC) is collapsing like a house of cards, owing to slowing sales growth and a massive impairment charge related to an ill-timed acquisition.
Teladoc Health's stock price dropped 40% last week after the company reported 1Q-22 earnings. The outlook is unappealing, and Teladoc Health's stock remains overpriced, despite having dropped by more than 80% since its peak in February 2021.
Teladoc Health has a highly unfavorable risk/reward profile and should be avoided at all costs.
Another Pandemic Winner Gets A Reality Check
Teladoc Health's stock price skyrocketed during the pandemic. The virtual healthcare company pioneered a disruptive business model that allowed patients to consult with their doctors via video-conferencing technology and apps, effectively rendering in-person visits to doctors' offices obsolete.
Obviously, during the pandemic, this business model was extremely useful. However, now that the pandemic is no longer as serious as it was at the start of 2020, pandemic winners like Teladoc Health are facing a new reality of slowing sales growth.
They are also confronted with shifting investor attitudes: as pandemic gains and high growth rates fade, investors are less willing to pay exorbitant sales multiples for unprofitable companies. Teladoc Health's stock price has dropped by 80% since February 2021, indicating a shift in attitudes.
TDOC Share Price (Finviz)
Teladoc Health's situation worsened last week when the company released its 1Q-22 results, causing the stock price to drop by nearly half.
The reason for the massive drop last week was that Teladoc Health's growth is slowing dramatically, and the company is still not profitable. Revenues increased by 25% YoY to $565 million, but EBITDA fell by 4% to $54.5 million.
While Teladoc Health continues to see positive business trends, such as increasing paid members and healthcare visits enabled by its platform, investors are increasingly concerned about the company's inflated valuation and growth prospects following the pandemic.
Revenue And Membership Overview (Teladoc Health)
It didn't help Teladoc Health's bottom line when it revealed a non-cash goodwill impairment charge of $6.6 billion, or $41.11 per share, last week.
The healthcare industry leader reported a net loss of $6.7 billion, or $41.58 per share. The impairment charge was related to Teladoc Health's $18.5 billion cash and stock acquisition of Livongo at the height of the pandemic boom.
Slashed Guidance For 2022
In addition to lower EBITDA and a $6.6 billion impairment charge, investors were asked to accept a reduction in Teladoc Health's expected sales for 2022.
The healthcare company now expects only 18-23% sales growth in 2022, with total sales of $2.40-2.50 billion, a $150 million decrease from previous guidance. Unfortunately, Teladoc Health will not be profitable this year, which raises concerns about the company's overinflated sales multiple.
Guidance For 2022 (Teladoc Health)
Teladoc Health Is Still Greatly Overvalued
Despite an 80% drop in Teladoc Health's stock valuation over the last year, the company is still overvalued. Teladoc Health is also unlikely to be profitable in 2023 (according to Yahoo Finance estimates), raising the question of why investors should pay 2.5 times the company's sales. Given the financials presented for 1Q-22 and the guidance provided for 2022, I believe Teladoc Health does not deserve such a high sales multiple.
PS Ratio Chart (YCharts)
Why Teladoc Health Could Increase In Price
If you didn't already know, I have a negative attitude toward Teladoc Health. Teladoc Health was a pandemic winner, but the pandemic's end has sucked the air out of the hot balloon.
Further valuation losses are thus very likely, especially given that investors rarely rush to buy a stock after the company has just slashed its guidance.
However, if Teladoc Health experiences stronger sales growth in 2023, perhaps as a result of a new acquisition, the company's stock price may rise.
My Conclusion
This was a terrifying earnings report. Teladoc Health reported 1Q-22 earnings, demonstrating why the company does not deserve a high premium valuation and why the risk/reward relationship for Covid-19 winners has become unappealing.
The virtual care company benefited greatly from the pandemic and changing patient attitudes toward healthcare delivery, but the pandemic has passed, and investors are no longer enamored with the stock.
After an 80% loss, the stock still trades at a significant sales valuation, which I don't believe is justified given that the company has burned through $6.7 billion in equity and expects slowing sales growth. Teladoc Health's stock should be avoided.
This article was written by
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