Tilladock Health‘s (TDOC -17.67%) The woes are not over. Shares of the telemedicine giant have fallen 23% since it announced a significant drop in the value of its goodwill in April.
Now, the stock is dropping again after the company announced a second goodwill impairment. The company recorded this fee in the second quarter. Shares fell nearly 18% in one trading session on July 28, following the July 27 earnings report.
At the same time, growth in revenue and medical visits at Teladoc slowed. The company also faces other challenges.
Despite all this bad news, the latest earnings report gave us some indication that the future could be bright for Teladoc. Does this make the company buy bad news? Let’s find out.
Not just a pandemic player
I have been generally positive on Teladoc over time. The pandemic has provided the company with a major revenue boost — but that’s not just a pandemic stock. Teladoc’s revenue was already on the rise before the health crisis, and telemedicine is a growing market. It is expected to reach more than $396 billion in 2027, according to Fortune Business Insights.
Teladoc is a major player. The total membership in the United States is over 56 million.
But the company has faced headwinds lately. One of the big problems was the $6.6 billion non-cash goodwill depreciation charge It was recorded in the first quarter, indicating that Teladoc paid a lot when it acquired Livongo back in 2020. To make matters worse, Teladoc recorded a new $3 billion goodwill impairment charge in the second quarter. This is related to the drop in Teladoc’s share price.
In terms of revenue and visits, it’s still progressing, but not as much as in the past. Revenue increased 18% year over year in the second quarter. That compares with 25% growth in the first quarter and triple-digit growth just a year ago. Total visits increased 31% in the second quarter. This slowed from a 40% increase in the same period a year ago.
Teladoc says the current economic environment means potential customers are taking longer to decide on and complete contracts, and that delays revenue. Low consumer sentiment also weighs on Teladoc’s BetterHelp mental health services. Finally, a strong dollar translates to lower revenue from international customers.
Can these problems be solved? Over time, yes, because they are related to the economic situation, not the flaws in the Teladoc business. Once the economy improves, these headwinds should disappear.
But this does not mean that we should ignore the situation today. Teladoc still has to get through these tough times. We don’t know exactly how long it will last.
Let’s take a look at some positive signals from the Teladoc report. One is chronic care. This is an area with a lot of potential because of the number of Americans with chronic diseases.
Nearly half of Americans have at least one chronic condition. People who enroll in chronic care tend to go to more than one program. Tilladock says about 30% of chronic care members are enrolled in multiple programs.
Another sign of future growth is Teladoc’s primary care service, which is still in the early stages of growth. Data shows that people who don’t go to doctors generally use Teladoc’s Primary360. Two-thirds of members who use the service have not seen a doctor in the past two years.
Finally, Teladoc continues to increase two key metrics that should increase revenue over time. This is US paid members and revenue per member. They gained 8.8% and 13%, respectively, year on year.
Is the stock a buy?
Given all these points, would Teladoc buy today? For cautious investors, no. Although the future looks promising, the road ahead is sure to be full of bumps.
Teladoc is not yet profitable, and the economic situation may continue to hurt the company – making profitability even more difficult. As a result, investors may penalize the stock for longer.
However, the most daring investors should take a second look at this telehealth heavyweight. The stock is trading at less than three times sales. If Teladoc manages this crisis well and continues to grow – even at a slow pace – that price tag looks very cheap.