Talkspace Stock: A Pure-Play Mental Health Stock
Our MBAs have been working overtime trying to cover all of the companies entering the public markets, so our lovely readers can separate the wheat from the chaff. And most of you know how chafed we’ve felt over the deluge of blank-check companies merging with pre-pubescent, pre-revenue startups that offer only suffering and sorrow for retail investors. Of course, we’re not alone in sounding the alarm over these special purpose acquisition companies (SPACs). One of the high muckety mucks at the Security Exchange Commission (SEC) recently said that the current SPAC model is as transparent as mud, allowing companies to promise the moon before they have even built the rocket to get there (see Astra Space as a literal example of this brilliant metaphor).
That’s one of many reasons why we’re intrigued by the proposed SPAC merger between Hudson Executive Investment Corp. (HECCU) and Talkspace, a telepsychiatry company that would offer investors the only pure play on virtual behavioral health. For starters, there’s actual paperwork on file with the SEC that provides real financial data and what could be described as optimistic but not outlandish projections on future growth, rather than just a flashy investor deck that looks like it was built by an intern at Robinhood. There are also meaningful and fast-growing revenues, though Talkspace is not yet profitable, which is to be expected from a company chasing dominance in an emerging market. And there’s a plan to expand market leadership internationally and into related sectors.
About Talkspace Stock
Founded in 2012, New Yawk-based Talkspace has netted $106.7 million in disclosed funding from more than a dozen investors, with SoftBank (9984.T) among the most immediately recognizable names on the roster. The last time the company raised capital was nearly two years ago in a $50 million Series D. Talkspace describes itself as a “virtual behavioral health” company with a “purpose-build technology” platform that connects members to a network of qualified mental health providers, including those with the power to dispense pills. The company has close to 3,000 providers on contract or staff, representing 21 different specialties, who are available 24/7 via various messaging channels and video chat. It offers direct-to-consumer plans for individuals, couples, and teens, as well as business bundles for companies and health insurers to provide employees and members.
We first covered Talkspace in our list of 10 telepsychiatry companies for mental health a couple of years ago. The arguments in favor of virtual behavioral therapy – increases in mental health problems like depression and anxiety, lack of insurance coverage for these conditions, insufficient number of therapists outside of neurotic-attracting cities like New York – have only strengthened since you know what. This is something we recently talked about with the rise of mindfulness meditation apps into billionaire-dollar businesses, so we won’t rehash too many of the depressing mental health statistics this round, except to note one very compelling one: The suicide rate in the United States jumped 30% from 2000 to 2016, according to data from the U.S. Centers for Disease Control and Prevention. Of course, 2016 happens to coincide with one of the worst events in world mental health history – the premiere of TikTok.
The Value of Virtual Behavioral Therapy
That begs the question: If mental health is so bad in the United States, can virtual behavioral therapy provide as good as or better treatment than traditional face-to-face talk therapy? The answer: More or less. Talkspace plays up a 2017 study published in the Journal of Telemedicine and e-Health that assessed outcomes for 57 people receiving treatment through SMS text messaging on Talkspace’s platform. Here are the results that the company highlights:
- 80% viewed Talkspace as more effective than traditional, face-to-face therapy
- 98% viewed Talkspace as more convenient than traditional therapy
- 68% saw improvement in their symptoms
However, the study’s authors noted that only 46% experienced “clinically significant symptom remission” and that the bond between client and therapist was lower than that found in traditional treatment settings. On the flip side: The study also noted that text therapy is about 42% the cost of traditional services and without the long wait lines. In other words, most people are happy to compromise between cost, convenience, and clinical outcomes. A much larger and more recent clinical trial also suggested that messaging therapy is on par with face-to-face talk therapy:
A 2018 study published in Journal of Technology in Behavioral Science (apparently there’s a journal for everything but pet rock ownership) hits the business angle: Researchers investigated the effectiveness of messaging therapy on improving employees’ depression and anxiety symptoms, as well as to assess changes in employee productivity post-treatment. In the study, 51 adults received treatment through text, audio, and video messaging on Talkspace’s platform. The results:
- 36% increase in work productivity
- 68% improvement in activities done outside of work
- 50% reduction in hours of work missed
There goes using your PTO for mental health breaks.
The Technology Behind Virtual Behavioral Therapy
Talkspace also talks up the technology behind its platform, which goes beyond simply providing text messages or video chats. The company states, “We believe that virtual therapy offers an attractive opportunity to improve behavioral health through data science and machine learning. Through digital phenotyping and predictive modeling, the data imprint left by interactions on our platform opens a new, quantitative viewpoint into the behavioral condition of our members.” In other words, Talkspace is amassing huge amounts of data to feed machine learning algorithms for mining the human mind.
First, the data, which provides “a holistic picture of each user – the problems they manifest, diagnoses, treatment plans, medical history, personal history, and clinical outcomes.” So far, Talkspace has captured more than four billion words sent by millions of users over 80 million anonymized messages. It has more than 500,000 completed psychological assessments containing more than three million measurements. Therapists have provided about 250,000 diagnoses and 200,000 progress and psychotherapy notes. The company also collects data on the providers themselves, including more than 220,000 therapist ratings. Everything, it claims, is up to HIPAA standards.
One of the main uses of AI involves connecting therapists to clients. Its matching algorithm combines information from both structured and unstructured sources to predict which therapists have the greatest chance of success with each patient. At the same time, it gathers client and therapist data and screens its roster of therapists to match the patient’s characteristics, clinical needs, and preferences. Algorithms also track the frequency and quality of clinical interactions, which enables Talkspace to provide a better therapist match if a patient finds her current provider too creepy.
Another focus of the company’s AI platform, similar to social media, is to keep its customers engaged as long as possible. Toward that goal, algorithms provide therapists “insights on their patients’ needs and behaviors and offer techniques and suggestions that are likely to maximize their patients’ satisfaction and engagement.”
The Bottom Line for Talkspace Stock
Speaking of patients: Talkspace claims to have provided therapy to about 200,000 people last year, more than double the 92,000 who sought help in 2019. As of February 2021, Talkspace had 51,000 active members between its consumer and business channels. No doubt the company, like many in the telehealth space, benefitted from the COVID-19 bump. Certainly, psychiatry lends itself most readily to telehealth compared to other medical categories, currently accounting for about two-thirds of all patients’ visits:
Now, let’s talk about the most important numbers of all – revenue. Talkspace also doubled revenue from 2019 to 2020, bringing in $76.2 million compared to $38.2 million the year before. However, it still managed to lose $21.8 million last year. This year’s projection of $125 million in revenue at more than 60% growth is pretty well in line with what the company has been doing in recent years:
B2C member subscriptions accounted for the lion’s share of the company’s revenues at $61.6 million. However, income from both health plan and enterprise clients showed huge growth – 691% and 247%, respectively. Major enterprise clients include Google and Expedia, while Aetna, Cigna, Premera, Humana, and Optum are among the large health plans and employee assistance programs that use Talkspace. In theory, business sector clients represent 40 million potential members.
The company believes there is a huge, untapped total addressable market, as illustrated below. That’s especially the case if Talkspace can expand internationally, which is one of its stated goals. That’s a big “if” in terms of operating a global healthcare service across nations with different regulations, cultures, and languages. The Asia-Pacific region, for example, is generally not known for its openness about mental health problems. The issue bleeds into Asian-American communities, whose members are much less likely to seek therapy. In the near term, Talkspace seems content to stick to English-speaking countries for its initial overseas expansion, targeting Canada, the U.K., Australia, New Zealand, and South Africa.
Talkspace is also talking about expanding into sleep and wellness, which again overlaps with other digitized mental health platforms like meditation apps. The company expects to pocket about $250 million from the upcoming merger and has already expressed interest in making acquisitions to compete in these sorts of complementary healthcare industries.
To Buy or Not to Buy
The question, as always, comes down to buy or not buy? We’re already long the largest provider of telehealth there is, so we’re more interested in how Talkspace complements or competes with Teladoc (TDOC). Talkspace claims to have provided therapy to about 200,000 people last year while Teladoc delivered over 10 million patient visits from clinicians and therapists in 2020. While Teladoc doesn’t segment their revenues by practice, they counted 73 million American members as of Q3-2020, all of whom can much easily be cross-sold additional services such as behavioral health which is only a small part of the bigger telemedicine picture.
Teladoc recently started offering mental health services to Canadian employers and there’s no reason they can’t do it elsewhere if they’re not already.
Sure, Talkspace is offering a big data angle, and they’ll need to find someone to pay for it (medical research organizations? big pharma?), or extract value from it themselves. There’s no guarantee it will produce anything but some interesting white papers in the same way we’re suspicious of their AI algos that match patient with provider. You don’t need sophisticated algos to figure out which patients should be matched with which therapists. If that match results in the patient being treated quicker (braces self for impact), how will that benefit shareholders when revenue growth suffers? If Talkspace’s stated goal is to keep its customers engaged as long as possible, then “the best” provider won’t be the one who solves the problem the quickest. We’d like to hear more about how they plan to monetize their growing big data asset.
We’re staying long and strong Teladoc and avoiding any smaller telehealth/telemedicine contenders. There is plenty of consolidation to be had in the mental health telehealth space and there aren’t many barriers to entry for newcomers.
Talkspace has demonstrated strong revenue growth and projects to be profitable by 2022 without trying to oversell the argument. Still, profitability in the short term seems highly unlikely given the company’s expansion plans into international markets and other adjacent healthcare industries.
Predictably, HECCU stock popped more than +30% in the days following the news of the proposed merger. However, it’s currently only trading at about a +5% premium from its IPO price, which means you’re paying not much more than what institutional investors paid, provided that it was fairly valued in the first place. If the merger goes through as planned, Talkspace will trade under the ticker symbol TALK.