It can be hard to see past the dark cloud around Teladoc Healthit is (TDOC 0.75%) first-quarter earnings report, which he delivered after the bell on Wednesday. There was a lot of bad news. A massive impairment charge widened the telehealth company’s loss. Headwinds hurt growth in two key businesses. And management has reduced its forecast for the full year.
As a result, shares plunged 40% in Thursday’s trading session, bringing the stock’s decline to more than 60% year-to-date.
After hearing all this, you might not want to touch Teladoc shares with a 10ft pole. But things might not be as bad as they seem. There is in fact reason to believe that these factors may not harm the company’s long-term prospects.
First, the bad news
During the quarter, Teladoc recorded a non-cash goodwill impairment charge of $6.6 billion. When a business makes an acquisition, the portion of the purchase price that exceeds the measurable value of the actual assets is defined as “goodwill”. It is the idea of paying for the potential gains that the purchase will eventually bring. Teladoc bought Livongo in 2020 for $18.5 billion. This week’s impairment charge indicates that the purchase price was too high.
The second and third bad news concerns BetterHelp’s direct-to-consumer mental health offering and Teladoc’s chronic care business. The company’s return on its BetterHelp marketing spend has been below expectations in recent weeks. Teladoc says smaller rivals are bidding high to win ad placements tied to online search terms. The company also claims that some competitors prescribe controlled substances to patients, which Teladoc will not. (The Drug Enforcement Administration has temporarily allowed telehealth physicians to issue these prescriptions during the COVID-19 crisis. Usually, in-person visits are required.)
As for chronic care, Teladoc is taking longer than expected to sell its services to potential clients. Employers remain more focused on the coronavirus situation and their efforts to get employees back into offices than on finalizing telehealth contracts. And to make matters worse, Teladoc’s smaller rivals are flooding employers’ offices with their offers.
These troubles prompted Teladoc to lower its annual guidance. The company now expects revenue in the range of $2.4 billion to $2.5 billion in 2022. That’s down from an earlier forecast of $2.5 billion to 2 .6 billion. It also revised its adjusted EBITDA guidance to the range of $240 million to $265 million from its previous range of $330 million to $355 million. Management now expects Teladoc’s net loss per share to widen significantly to $43.50 from the previous range of $1.60 to $1.40. Importantly, however, this includes this non-cash goodwill impairment charge, which by itself equates to a loss of $41.11 per share.
There is a good side
An important point that some investors have overlooked regarding Teladoc is that all of these headwinds may cause difficulties this year – but they won’t necessarily hurt the company in the long run.
I wouldn’t expect another huge charge for depreciation, for example. And the acquisition of Livongo is still not fully integrated into the operation of Teladoc. That means we’re likely to see it generate some growth down the road.
Problems with BetterHelp are caused by outside factors that won’t last forever. As Teladoc CEO Jason Gorevic said on the earnings call, rivals won’t be able to rely on prescribing controlled substances and high bids for better search placement to give them advantages. long-term. Meanwhile, Teladoc still predicts that BetterHelp “will grow in the upper half of our long-term target range for mental health revenue growth of 30% to 40% per year.”
The slowdown in sales of its chronic care business does not signal a decline in interest. Instead, it just means contracts take longer to arrive – and that could delay some revenue. Even so, Teladoc expects chronic care revenues to grow by a percentage in the teen age bracket this year.
What does all this mean for investors?
Clearly, Teladoc’s stock price could take some time to recover. At least some of the issues that have upset so many investors may linger over the next few quarters. These problems seem temporary. But it will be important to monitor Teladoc’s progress to ensure the company can still meet its long-term goals. There are signs that its focus on the “whole person” will allow the company to stay ahead of its rivals. During the quarter, for example, multi-product sales accounted for 78% of total sales.
Teladoc shares have crashed to what many would consider cheap. It is now trading at around 2.5 times sales. But has the stock bottomed out? It is impossible to predict.
Given the market sentiment around Teladoc, cautious investors would be best advised to watch this stock from the sidelines. But if you’re more of an aggressive investor with a long-term horizon for your portfolio, you might want to take this opportunity to bet on Teladoc’s growth and eventual share price rally.