The Only Telehealth Stock for Telemedicine Investors
Telemedicine and telehealth, two words that have suddenly become extremely popular with the investment community. In order to be successful investors, we need to distinguish between fads and disruptive innovation. When environments change to favor a particular type of technology, we need to figure out if those headwinds are temporary.
A few years back, we wrote about “8 Telemedicine Startups to Watch – Half Use AI.” These 8 startups are developing telemedicine solutions which plan to dramatically reduce the average 18.5 days most people wait to see a doctor. Why wait in the doctor’s office when telehealth services can be accessed from the comfort of your own bed? Making doctors available any time seems like a great business model if people or organizations are willing to pay for a doctor on demand. And they are, because having people consult physicians using telehealth channels saves organizations money.
Telehealth or Telemedicine?
We typically see these two terms used interchangeably, but they actually do differ. According to The American Academy of Family Physicians, “telehealth is different from telemedicine in that it refers to a broader scope of remote health care services than telemedicine.” For the sake of this article, we’ll consider the two terms to be synonymous.
The Arrival of Social Distancing
We might be the only ones who are just realizing this now, but the earliest date at which someone might have suspected something was rotten in
Denmark Wuhan was Dec 31, 2019. In other words, you can quickly see the impact of the WooHoo Flu for any given stock or benchmark by looking at the year-to-date return. Let’s see how some popular benchmarks and healthcare stocks performed since then. One of these is not the same as the other.
- Illumina -13.5%
- Johnson & Johnson -3%
- Stryker -13%
- Medtronic -11%
- Teladoc +75%
It took about 13 days into the coronavirus pandemic before Teladoc Health stock began breaking out, a date which coincided with the first known case of the coronavirus outbreak occurring outside of China in Thailand. What makes this such a unique case is that no information would have been available prior to 2020 so we can attribute the majority of TDOC stock’s sudden rise to investors piling into a stock because of an unexpected event. Perhaps there are shareholders of Teladoc that were holding shares prior to 2020 and they’re wondering if they ought to take some profits off the table. Today, we’re going to look at the company’s annual report which was filed with the SEC in late February and contains no references to the pandemic.
Founded in 2002, Teladoc Health (TDOC) is the self-described “largest and most trusted global leader of comprehensive virtual healthcare services” with over 50,000 clinicians offering a “portfolio of services and solutions covering more than 450 medical sub-specialties.”
The company’s 17 offices around the globe provide telehealth services to 175 countries in more than 40 languages. The company earned approximately 20% of revenue internationally in 2019, completing approximately 4.1 million telehealth visits for patients globally. As of their latest 10-K filing, they have over 36.7 million unique U.S. paid Members and 19.3 million visit fee-only individuals who have used their platform. The channels through which people access Teladoc Health services include:
- Over 50 health plan clients, including some of the largest in the United States like Aetna and Blue Shield of California
- Over 70 global insurance and financial services firms, such as AIG, AXA Global
- Over 300 hospital and health system clients
- Employer Clients include over 40% of the Fortune 500 companies
These companies are offering Teladoc Health services because they save money by doing so. An independent study showed that clients saved $472 on average per general medical visit when receiving healthcare through Teladoc Health instead of traditional doctor visits.
Since their 2015 IPO, Teladoc Health has been expanding organically and through acquisitions.
Earlier this year, Teladoc announced a definitive agreement to acquire InTouch for $600 million. Prior to this announcement, InTouch was making some acquisitions of their own as their reach expanded to include 35 of the 50 largest U.S. health systems. One interesting initiative they were involved in was a “multi-year licensing service agreement with Intuitive Surgical to build an Internet of Medical Things (IoMT) network,” which will “connect thousands of da Vinci Surgical Systems around the world to exchange real-time data.” They then plan to use data analytics and machine learning to gain insights from this vast network of surgical robots.
Since around 78% of these telehealth consultations take place digitally, that means loads of big data can be analyzed across the entire Teladoc Health network. If you wanted to create the ultimate medical chatbot, you could learn a lot by looking at the millions of telehealth sessions they’ve completed successfully. With retention rates consistently over 90%, patients seem content with the quality of the Teladoc telehealth platform.
As for Teladoc’s financials, all the numbers are moving in the right direction. Revenues are growing at ~60% CAGR and the company is slowly edging towards a positive operating cash flow.
The Only Telehealth Stock to Own
So, is Teladoc Health the only telehealth stock out there? There are many companies like Teladoc, and one way to find the major players is by looking at who Teladoc says their competitors are. From their latest 10-K:
Competitors in the telehealth and expert medical services market include MDLive, Inc., Doctors on Demand, Inc., American Well Corporation and Grand Rounds, Inc., among other small industry participants.Teladoc 10-K Feb, 2020
Let’s take a brief look at each of these telemedicine services, the first three which we covered in our previous article on “8 Telemedicine Startups to Watch – Half Use AI.“:
- MDLive – Founded in 2006, MDLive has now raised just over $123 million in funding with backing from Cigna (CI), a $67 billion health service organization. They have around 39 million members according to their website.
- Doctor on Demand – Founded in 2012, Doctor on Demand has taken in just over $167 million in funding. At their last round in April 2018, they had assisted more than 2 million patients with 400 employer customers and more than two dozen healthcare network partners.
- American Well Corporation – Founded in 2006, Amwell has raised a whopping $517 million in funding so far. Over 150 million individuals have access to Amwell telehealth through their health plan.
- Grand Rounds – Founded in 2011 and raised $106 million so far. Website states 120 employer customers and 4.5 million members.
None of the above companies are publicly traded, though that could change now that the window of interest in telehealth has opened. Surely Teladoc has already sized up every player out there and will continue making acquisitions to maintain their leadership position. Even Investopedia – which published a clickbait piece titled “Top Stocks Telemedicine Companies” – concluded that Teladoc is “the only public, exchange-traded company.” To be fair, we also went with a clickbait title – “The Only Telehealth Stock for Telemedicine Investors.” We’re not saying you should own it, we’re simply saying it’s the only one you can own. See how that works?
Teladoc’s CEO is understandably out talking with the media about how “we’re on the verge of a new era for virtual care in the health-care system.” That’s probably a true statement, even before the pandemic reared its ugly head. MDLive’s CEO was quoted as saying “Government experts anticipate daily visit volumes for virtual care providers will increase from 50,000 to 100,000 industrywide during the pandemic.” If the majority of this increase comes from new patients, that bodes well for telehealth companies. These are users who are likely to continue using the platform after the pandemic, provided the level of service was acceptable. Scalability is key, and Teladoc Health says their “highly scalable platform is currently equipped to serve over 100 million members.” We also see a number of new players getting funded, something we may take a look at in a coming article.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence Dividend Growth Investing report freely available to Nanalyze Premium subscribers.