Teladoc Health‘s (TDOC -17.67%) the miseries are not over. Shares in the telemedicine giant have fallen 23% since announcing a massive goodwill write-down back in April.
Now the shares are falling again after the company announced a new write-down of goodwill. The company recorded this charge in the second quarter. Shares plunged nearly 18% in one trade on July 28, following the July 27 earnings report.
At the same time, both growth in income and doctor visits have slowed at Teladoc. The company also faces other challenges.
Despite all this bad news, the latest earnings report gave us some signs that the future may be bright for Teladoc. Does this make the company a bad news buy? Let’s find out.
Not just a pandemic pill
I have been generally positive about Teladoc over time. The pandemic gave the company a big boost to earnings – but this is not a share just for the pandemic. Teladoc’s revenues were already on the rise before the health crisis, and telemedicine is a growing market. It is expected to reach more than $396 billion by 2027, according to Fortune Business Insights.
Teladoc is a leading player. Membership in the US amounts to more than 56 million.
But the company has had headwinds recently. A major issue was the $6.6 billion goodwill impairment recorded in the first quarter, indicating that Teladoc overpaid when it acquired Livongo back in 2020. To make matters worse, Teladoc recorded another goodwill impairment of 3 billion dollars in the second. quarter. This is linked to the decline in the Teladoc share price.
In terms of revenue and visits, they are still moving forward, but not as much as before. Revenue rose by 18% year-on-year in the second quarter. That compares with 25% growth in the first quarter and triple-digit growth just a year ago. Total visits increased by 31% in the second quarter. This is down from a 40% gain in the same period a year ago.
Teladoc says the current economic environment means potential customers are taking longer to decide on and finalize contracts, delaying revenue. Lower consumer sentiment is also weighing on Teladoc’s BetterHelp mental health services. Finally, a stronger dollar results in lower revenues from international customers.
Problems related to the economy
Can these problems be solved? Over time, yes, because they are linked to the financial situation, not to failures in Teladoc’s operations. As the economy improves, this headwind should disappear.
But this does not mean that we should shrug our shoulders from the current situation. Teladoc still needs to get through these tough times. And we don’t know exactly how long they will last.
Let’s look at some of the positive signs from the Teladoc report. One is chronic care. This is an area with a lot of potential due to the number of Americans with chronic conditions.
Nearly half of Americans suffer from at least one chronic condition. And people who enroll in chronic care tend to go for more than one program. About 30% of chronic care members are enrolled in multiple programs, Teladoc says.
Another sign of future growth is Teladoc’s primary care service, which is still in the early stages of growth. Data shows that people who don’t normally go to doctors are using Teladoc’s Primary360. Two-thirds of the members who use the service had not seen a doctor in the last two years.
Finally, Teladoc continues to grow two key numbers that should increase earnings over time. These are US paid members and revenue per member. They increased respectively by 8.8% and 13% year on year.
Is the stock a buy?
Considering all these points, is Teladoc a buy today? For cautious investors, no. Although the future looks promising, the road ahead is sure to be bumpy.
Teladoc is not yet profitable, and the financial situation may continue to hurt the company – making profitability more difficult to achieve. As a result, investors may sanction the stock for a while longer.
Still, more aggressive investors should take another look at this telehealth heavyweight. The stock trades at less than three times sales. If Teladoc handles this crisis well and continues to grow—even at a slow pace—this price looks pretty cheap.
An investment in Teladoc stock is unlikely to pay off any time soon. But Teladoc still offers investors the opportunity for big rewards over the long term.
Adria Cimino has no position in any of the aforementioned shares. The Motley Fool has positions in and recommends Teladoc Health. The Motley Fool has a disclosure policy.