With the stock of publicly traded, Purchase, New York-based remote care management company Teladoc Health plunging recently, the company’s CEO, Jason Gorevic, attempted to frame the firm’s financial position as positively as possible to investors in an earnings call on Wednesday afternoon, April 27. The company announced on Wednesday that it was taking a charge of $6.6 billion to write down the value of its acquisition of the Mountain View-based Livongo, which had been finalized on Oct. 30, 2020.
That charge led to a loss of $6.7 billion, or a loss of $41.58 per share, in the first quarter of 2022, as the virtual physician visit market has undergone exceptional tumult, with huge market gains marked during the early months of the COVID-19 pandemic in the spring of 2020, dissipating somewhat since then. It is a dramatic turn of events for Teladoc; as the market for such companies had appeared very bright at the start of the pandemic in the spring of 2020. As CNBC’s Ari Levy had written on Aug. 5, 2020, “Coming into 2020, Teladoc and Livongo were worth a combined $8.5 billion. Now they’re joining forces in one of the biggest deals of the year. Teladoc, a provider of virtual doctor visits, announced on Wednesday that it’s acquiring digital health company Livongo, in a cash and stock deal that values Livongo at $18.5 billion. According to Piper Sandler, the combination gives the companies a joint enterprise value of about $37 billion.”
CNN Business reporter Paul R. La Monica, explained it this way in a report on Thursday on the network’s website, in its “Markets Now” section: “More people are willing to leave home for doctor visits, and shares of Teladoc (TDOC) plunged more than 45 percentThursday. The company warned of a weak sales outlook and higher costs in its earnings report after the closing bell Wednesday. Teladoc, along with companies like Zoom (ZM), Roku (ROKU) and Chewy (CHWY) were major beneficiaries of the shelter-in-place economy during the height of Covid-19 fears in 2020 and the early part of last year. But all of these stocks have now plunged from record high levels. Teladoc’s stock is down more than 67 percent this year — and 90 percent from its peak price in February 2021,” he wrote. “Increased competition is also a factor. Amazon (AMZN) has launched its own telehealth service and other Teladoc rivals are spending heavily on marketing to attract customers. That could be cutting into growth for Teladoc, but CEO Jason Gorevic told analysts that the platform is not going to engage in an ad spending war.”
Meanwhile, The Wall Street Journal’s Joseph De Avila, in a report published to the newspaper’s website on Thursday evening, wrote that “Teladoc said late Wednesday in its quarterly earnings report that its financial outlook had dimmed for the rest of the year amid higher advertising costs and slower than expected sales growth. The digital health industry has also grown increasingly crowded. Teladoc’s stock closed Thursday at $33.51, its lowest point since February 2018. It has fallen nearly 90% since its high in February 2021.” He noted that The last time Teladoc traded at about $33, in 2018, it had a fraction of its current number of paid users and had negative cash flow, quoting Simon Barnett, an analyst for ARK Investment Management, who said that his firm is focused on Teladoc’s future over the next five years rather than on one bad trading day. Now the company has positive cash flow and continues to grow its promising enterprise business, which includes a new partnership with Northwell Health, New York state’s largest healthcare provider, Barnett told the Wall Street Journal.
“We are disappointed and surprised” by the revised financial outlook, Goldman Sachs wrote in a research note Thursday, while maintaining a buy rating.
La Monica, in his CNN Business report, noted that “Increased competition is also a factor. Amazon (AMZN) has launched its own telehealth service and other Teladoc rivals are spending heavily on marketing to attract customers. That could be cutting into growth for Teladoc, but CEO Jason Gorevic told analysts that the platform is not going to engage in an ad spending war.”
And he quoted Gorevic as stating that “We continue to take a disciplined approach. So we are not going to overspend our way through that and follow the lead of irrational competition. Further, La Monica wrote, “Gorevic noted that increased competition for telehealth services ‘has created noise in the marketplace’ and that ‘in the near term we expect this noise to persist.’ But he maintained that Teladoc can be the ‘long-term winner’ in virtual health. But it may take time for Teladoc to get back on track. Gorevic conceded that as many American workers have begun to return to offices, corporate human resources departments’“are getting squeezed … dealing with the Great Resignation and all of the hiring and allocating resources to talent acquisition and retention.’”
According to the transcript of his commentary to investors Wednesday, Gorevic said that “We're certainly disappointed to lower guidance today. However, we continue to believe we're the best positioned company in healthcare and technology to transform the healthcare experience. With that, let me spend some time walking through what led us to reassess our outlook for the balance of 2022, starting with our direct-to-consumer mental health service, BetterHelp. Over the past several weeks, we've seen lower-than-expected yield on marketing spend for BetterHelp, which is a reversal of the trends we experienced exiting 2021 and in the early part of 2022. One example of this is paid search advertising, where we've seen a notable increase in rates for keywords associated with online therapy. We believe the biggest driver of this dynamic is smaller private competitors pursuing what we think are low- or no-return customer acquisition strategies in an attempt to establish market share. Some of those same providers are also exploiting the temporary suspension of certain regulations associated with the national health emergency concerning the prescription of controlled substances. We believe these strategies are unsustainable in the long-term. This dynamic is likely to persist at least throughout the remainder of this year, however, resulting in growth and margin contribution from BetterHelp that is below our expectation in February.”
Gorevic went on to say that “The good news is that unlike smaller market participants, we operate at a scale that allows us to continue investing in the direct-to-consumer market to drive both strong growth and returns. And we can drive growth while remaining disciplined in our member acquisition strategy. Furthermore, our push to diversify customer acquisition channels in recent years has left us better positioned to operate within this environment. No single channel accounts for more than 25% of newly acquired members for BetterHelp. So for example, we are less reliant on paid search as a source of new members than in the past. While the dynamics in the direct-to-consumer market were only a modest drag on our first quarter revenue, given the persistency of these trends over the past several weeks and the broader economic backdrop, we've incorporated this updated view into our forward outlook, including an assumed 10 percent lower revenue yield per dollar of ad spend for the full year. To be clear, we continue to expect strong growth and margin contribution from BetterHelp, albeit below our prior expectations. Our revised revenue guidance range for 2022 assumes BetterHelp will grow in the upper half of our long-term target range for mental health revenue growth of 30% to 40% per year. In chronic care, we have more clarity on the cadence of onboardings from the large health plan client that we discussed last quarter. We remain on track for population launches with this client and other recently signed deals over the course of 2022.”
