TDOC Stock Forecast: Teladoc Shares Fall on the Backdrop of Poor Results.
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TDOC stock forecast: Support and Resistance
TDOC stock forecast: Bear Case
- Disastrous Livongo Acquisition- Teladoc health acquired Livongo Health- which specialized in chronic care management in 2020 for $18.5 billion. But the fortunes of Livongo changed after its acquisition. The company which was doing so well before the acquisition could not add value to the Teladoc health and in fact, chronic care membership had slowed down to such levels that Teladoc had to pay $6.6 billion goodwill impairment charges in this quarter related to the Livongo acquisition. Goodwill is the amount that a company pays for a particular asset beyond its real value and recent impairment charges paid signal that Teladoc paid way too much for Livongo and it is not worthy enough. Recent impairment charges have led to a 50% decrease in Teladoc’s goodwill. All this shows that Livongo acquisition was a disastrous one.
- BetterHelp Not Performing Well –Another headwind for Teladoc is that its star product BetterHelp- its mental health segment is not performing well for a year now. In this space, company is losing market share to well-funded competitors that keep flocking the market, for example Talkspace (TALK) is another competitor for BetterHelp eating up its market share. Also management cited low rewards for marketing campaign for BetterHelp and increased costs leading to decrease in the revenue guidance for coming quarters.
- Lowered Guidance for FY-2022-23- Teladoc fell 40% on the following day of declaring first quarter results i.e. 27th April 2022. Although the major reaction is due to the goodwill impairment charges absorbed in this year, but another equivalent reason is the lowered guidance for full year. Its revised revenue for FY 2022 is $2.4 billion, while original guidance was $2.65 billion. The main pain point is revised EBITDA to $(52) million from an earlier projection of $18 -$48 million, and net loss per share at $ (43.50) per share from an earlier projection of $ (1.60) per share. Although the quarter results were not below estimates, but it was lowered guidance that sparked the selloff. In the market of bad global sentiments, investors do press the sell button in panic and lowered guidance reveals that the days of triple-digit growth are over for Teladoc.
- Management is not upto the Mark – It is true that acquisition of Livongo Health has gone poorly for Teladoc and also its lowered guidance helped the investors to press the sell button. But there is a larger picture as to why Teladoc is performing poorly and that has to do with the approach of management. It has been the case that management has been telling one thing to investors and results are depicting something else. They are not able to deliver what they promise investors. This makes it difficult to trust the management. For example – last month CEO Jason Gorevic was present at Cowen 42nd Annual Healthcare conference and he briefed about how well BetterHelp is performing and just after one month, he states that BetterHelp is facing tough competition from small companies with better alternatives. Similarly, at investors day in November 2021, it expected revenue growth of around 25% to 30% per year, but in the recent results, it has been cut to 18% for full year FY 22-23. The point is that the approach should be to project less and deliver more, but the reverse has been seen for Teladoc and it is punished hardly for the same reason.
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TDOC Stock Forecast: Bull Case
- Possibility of a turnaround after 90% fall – Teladoc is down by 76% in the last year (as of 14.05.2022) and is down by almost 90% from its all-time high of $154. Out of this 76% fall, 48% has come in the last one month and the major contributor is the following day after results on 28th April, when the stock fell by 40%. Some analysts believe that it is an overreaction and stock will be upward trajectory soon. For instance, Teladoc is up by 9.45% in the last trading session on Friday 13.5.2022. Also, the optimism is due to comments by Ark Invest CEO Cathie Wood who even compared Teladoc with Amazon’s decline and said that both the stocks belong to the “same league”. Noticeably, Wood’s ETF owns nearly 11% of Teladoc and it was an attempt to stabilize the share price. Also, the stock is looking cheap right now and is trading at only 2.1 times forward sales estimate with a possibility of a turnaround anytime soon.
- Bright spots from recent quarter results- Let’s dissect the recent quarter results and find out the bright spots from the same. The fuzz is all about goodwill impairment charges and lowered guidance. But keeping that aside, results do match with the expectations. For example, total US paid membership is reported at $54.3 million against the estimates of $54 million. Fee only access and total visits also came in line with the expectations, with 25.2 million and 4.5 million respectively. These three metrics grew at 5%, 14%, 35% respectively. Although the guidance is lowered, but the company has achieved good quarter results with YoY growth and this is something to be cheered among investors.
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TDOC stock forecast: Conclusion
Teladoc is the leader in its space and it has been growing at very good pace of 20% quarterly and annually. It can be argued that management has lowered guidance, but it is always good to project less and perform better, it may happen that in the next quarter results, it beats estimates handsomely and share price go up by 40% on the eve of results.
That said, it is also true that Teladoc is facing its own share of problems and it messed up the acquisition of Livongo and has lowered guidance for fiscal year in panic. Also, BetterHelp needs to deliver to enable Teladoc to come out of woods. Livongo features are still not fully integrated with the Teladoc app and it can be winner in the coming years if used properly.
Investment in Teladoc at this juncture depends on the risk appetite of investors. While it presents a golden opportunity to be have multibagger returns in couple of years, but it is a risky bet and there are more hurdles ahead for management to come back on track.
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