Abstract: Introduce the leading telemedicine service platform Teladoc Health’s business scope, market overview, latest development strategies, company advantages, etc. Finally, I will also summarize my views on the company.
Teladoc Health Inc is an international telemedicine service platform headquartered in the United States. Its main business includes telemedicine, medical advice, artificial intelligence and analysis, telemedicine equipment and authorization platform services. Teladoc mainly provides telemedicine services through telephone and video conferencing software and dedicated mobile apps.
The road to becoming the largest telemedicine company
Teladoc is currently the largest telemedicine service company in the US, and the company’s business is still growing. Let’s take a look at the company’s development path.
- Teladoc was formally established in 2002
- In 2007, the number of members reached 1 million, including major employer AT&T
- Jason Gorevic was appointed as CEO in 2009
- Acquired Consult A Doctor for US$16.6M in 2013
- In 2013, the number of visits reached 120,000 per year
- In 2014, due to the Affordable Care Act, a large number of insurance companies signed Teladoc, including Blue Shield, Oscar, Home Depot, T-Mobile CalPERS and Rent-A-Center.
- Acquired AmeriDoc for US$17.2M in 2014
- In 2014, the number of diagnosed patients reached 8 million and the number of visits reached 299,000
- Acquired Compile Inc in 2015
- Acquired BetterHelp for US$3.5M in 2015
- Acquired Stat Health Services Inc for US$30M in 2015
- Listed on the New York Stock Exchange in 2015, with an IPO of US$19 per share, with a market value of US$758M, a 50% increase on the day of market opening
- Acquired HealthiestYou for US$45M in 2016
- In 2016, the number of members reached 15M, the U.S. market share reached 75%, and the business covered 48 states.
- Acquired Best Doctors for US$440M in 2017
- Acquired Advance Medical for US$352M in 2018
- Acquired French medical company Médecin Direct in 2019
- Business expansion to Canada in 2019
- In 2020, it acquired Livongo Health for US$18.5B, which was the third largest acquisition in the history of the United States at that time.
From the development history above, it can be seen that Teladoc continues to increase the company’s business through continuous fund-raising and acquisitions of companies including rival companies and related companies in the industry. The acquisition amount is constantly reaching new highs, thus achieving the largest in the industry.
Teladoc’s U.S. stock ticker is TDOC, its current share price is US$158.6, and its market value is US$24.41B.
The stock price is now close to a one-year low and has fallen by almost half from its one-year high. The poor market conditions are mainly due to the following two reasons:
- Since March this year, the U.S. 10-year bond interest rate has risen sharply, causing global investors to fear that the inflation rate will continue to rise sharply, thus affecting the valuation of many growth stocks.
- The financial report of the first quarter of this year showed a slowdown in member growth, which made investors fear that the high valuation of the stock price would be difficult to maintain.
The situation described in point 1 above has now changed. As can be seen from the chart below, the 10-year U.S. Treasury bond yield has fallen from the high in March to the level in late February, indicating the fear of rising inflation has been cooled down. This is of course due to the fact that US Federal Reserve Chairman Powell and the other officials have actively expressed dovish remarks to the market in recent months. They have repeatedly expressed that the increase of inflation is only a temporary situation and will not keep rising sharply.
As can be seen from the figure below, Teladoc’s annual revenue has increased from US$123.61M in 2016 to US$1.09B in 2020, with an average annual compound growth rate of 74.5%. However, analysts estimate that the revenue in the next two years will be about US$2.01B and US$2.59B, respectively, and the average annual compound growth rate will drop to about 56.6%.
According to Teladoc CEO Jason Gorevic’s latest statement at the 41st Annual Growth Stock Conference on June 1, 2021, Teladoc is now seeking legal support from the U.S. state and federal governments. In addition to virtual urgent care, Teladoc strives to become the first stop for consumers in health care service needs. Teladoc believes that it can provide consumers with better, cheaper and more user-friendly services across the entire spectrum of health and medical service needs, so that consumers do not have to go to physical medical institutions every time for consultation. It is believed that technology can be used to break geographical restrictions and provide consumers with various high quality specialties, including physical and mental medical services. Teladoc has always been actively developing new products, expanding its international footprint through acquisitions, and expanding to other service-providing markets in order to provide direct-to-consumer and business-oriented channels. Teladoc believes that the COVID-19 pandemic has sharply accelerated the development of the telemedicine industry, and believes that the company has made the right decision in its development and seized the opportunity to make the company a leader in the industry instead of a follower. As a leader in the industry, it enables Teladoc to set the rules of the game on its own to a certain extent, including the definition of service categories.
The moat of Teladoc
The company’s CEO Jason Gorevic believes that after years of active development in the industry, Teladoc has successfully built a broad moat for itself, including the following:
- The company’s product and service portfolio is extremely wide, and its clinical medicine capabilities are absolutely in the first place in the United States. In addition, Teladoc has always been at the forefront of industry development and ahead of competitors. What’s more, large employers, health care plans and medical service providers, as well as direct consumers, when they think of demand for medical services, they will think of coming to Teladoc directly. Because of the wide range of professional services provided by Teladoc, it is absolutely impossible for other competitors to provide.
- The scale effect of the company’s operations. There are many Fortune 500 employers, large medical plans, government agencies, etc. in the United States that need to find a reliable and large-scale medical service platform provider. Teladoc just meets their needs. The scale effect is not only to improve reliability, but also to provide high-performance data processing and application capabilities and other technological means to bring higher value, better medical effects, deeper insights, and ultimately cheaper medical costs. For example, there are currently more than 12 million online visits and more than 2 million blood glucose readings every week, as well as a huge number of weight management and blood pressure readings. Teladoc can analyze and research these precious data through data science technology, these are Teladoc’s unique treasures of wealth that other companies cannot do.
- Global expansion is another big advantage. For example, the world is experiencing an asymmetric pandemic development. We can see that India is experiencing a rapid increase in COVID-19 cases. Whether fortune 500 or global insurance companies, if their employees in India have medical service needs, they can help through Teladoc to their employees in India, these are global coverage capabilities that other competitors cannot provide. In addition, Teladoc has been investing in financial and data processing capabilities to enable the company to withstand financial risks. These are Teladoc’s unique advantages worldwide.
Growth of member numbers is slowing down?
Teladoc said at the first quarter financial report of this year that the number of members is only expected to increase by 1% to 3%. Investors are worried that this will become the new normal for Teladoc’s development and lowered the company’s growth expectations. In this regard, Teladoc said that it added 15M members in 2020 last year, which grew to 52M paying members. Teladoc believes that in addition to focusing on the growth of the number of members, it should also focus on providing modern and higher-quality services to such a huge user group and accelerate the development of new products and services to fill the needs and opportunities of these growing user groups. Just like the East Coast Blue Plan mentioned by Teladoc at the last quarterly result press conference, this plan is a victory for Teladoc, and it expects that the number of members will be further increased in the first half of 2022, so as to accelerate the number of members again. But in fact, membership growth is only a part of the overall development strategies. Teladoc proposed four levers for company growth in March 2020. They are:
- Growth of membership numbers
- Growth of visit numbers
- Increase the number of products
- Increase new payment models
Items 1 and 2 are purely the increase in the number of members and businesses that drive income. Items 3 and 4 are what Teladoc wants to emphasize at the moment. These can drive the average revenue per member. Teladoc can currently see that this number is increasing, which is what Teladoc described as the contribution per member per month (PMPM). The PMPM fee rose from US$0.85 last year to US$2.25 in the first quarter of this year, an increase of 164%. This is because the company has launched more products, plus more members have purchased different products and services. Looking to the future, Teladoc believes that through more payment models, especially when items 3 and 4 are combined, the company has the opportunity to benefit from the fact that Teladoc generates greater value for customers and earn more PMPM revenue.
In addition, Teladoc did not include the chronic disease care patients served in the calculation of the number of members. The company added 62,000 new chronic disease care patients last year. Patients in this group benefit from Teladoc’s provision of more chronic disease care services. Last year, only 5% of patients in this group purchased Teladoc chronic disease care services. By this year, this proportion has increased to 15%. Even for the same group of members, the number of services provided has tripled in just one year. This can explain why Teladoc stressed on increasing PMPM revenue, that is, without a significant increase in the number of members, the company’s revenue will also increase with the growth of PMPM revenue.
Therefore, if investors only look at the number of members, they may just think that Teladoc’s growth has shown a significant slowdown. In fact, the growth of the number of members is only one of the four growth levers mentioned above. From the first quarter of 2021, it can be seen that the sales amount has increased by 150% year-on-year, and the gross profit margin has also increased from less than 6% to over 12.5%, thus driving EBITDA to increase by 430%. It can be seen that the financial performance is very satisfactory. After Teladoc actively develops new products, the proportion of members who use more than one product has increased from 9% to more than 40%. It can be seen that Teladoc’s newly developed products are indeed welcomed by members and can truly meet their needs.
Acquisition of Livongo
Many investors do not understand the purpose of the acquisition of Livongo. In fact, it is not mainly for the increase in the number of members. The real main purpose is to increase the revenue of PMPM and cross-sell the required products to the original customers of the two companies. It has the long-term multiplication effects on the sales rather than the one-time membership number increase.
Mental health treatment
Teladoc’s new service, myStrength Complete, provides mental health treatment. The treatment of this specialty service can be used complementarily with other services, and the price of mental health treatment items can be higher, which can also effectively drive higher PMPM income.
Even before the pandemic, the demand for mental health services had already risen rapidly, but the situation even got worsened after the pandemic, and it has become a mental health crisis. But fortunately, people realize that virtual mental health service is more consumer-friendly than traditional mental health treatment in which it provides lower barriers to patient consultation and effectively helps those who actually need repeated treatment can now maintain the entire treatment progress even with low enthusiasm. Benefitting from the other digital technology assets accumulated by Teladoc, including the treatment capabilities of various specialties, as well as seamless connections in psychiatry and drug management, the development of mental health specialty services is getting better and better.
The business volume of Teladoc’s mental health treatment services for corporate needs increased by 500% last year. Even based on such a high base, this year has increased by more than 100% compared with last year. And based on the still huge demand, Teladoc believes that business growth in this area will continue.
Other than that, mental health treatment is different from other acute diseases. This type of treatment itself is long-term and repetitive. In many cases, treatment is required for life, so it is not like some acute diseases that may only require a single visit. Therefore, the fees for mental health treatment are generally charged on a weekly, monthly or even yearly basis. Teladoc has also observed that as such patients have established a relationship with Teladoc, their average treatment time is increasing. It proves that they are indeed very satisfied with Teladoc’s professional services.
Advantages of diversified professional services
Teladoc has always emphasized the importance of the portfolio of professional services provided. A patient often has got more than just a single physical or mental illness, and very often they have both at the same time, but Teladoc can follow up on both issues at the same time. This is exactly different from other competitors in the market. For example, some patients suffer from diabetes and high blood pressure at the same time, and they may also have potential weight management problems, as well as untreated depression, worry, stress and other problems. These conditions can be included in the comprehensive treatment services provided by Teladoc where the problems can be solved with competitive cost and excellent treatment effect.
If you look at Teladoc’s development history alone, you might think that Teladoc is just a company that develops blindly only by mergers and acquisitions. But if you carefully listen to the company’s management’s vision and development strategy plan for the company’s development, you will have another feeling about Teladoc. The company’s CEO Jason Gorevic has been leading the company for 12 years. From his response in the interviews, it can be seen that he is a more pragmatic person, not a person who just likes to talk but does nothing. In my point of view, the company has now successfully developed into the top leader in the telemedicine service industry. Although it faces increasing competition, Teladoc’s accumulated professional medical service capabilities and the huge amount of patient treatment data have provided them with first-mover advantages. If you believe that the future prospects of telemedicine industry are bright, investing in Teladoc will be a good choice.
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