Life support

Teladoc stock is on life support – can it be reactivated?

Lreading telemedecine vendor Teladoc (NYSE: TDOC) was already having a tough 2022 when it released its first-quarter results on April 27. Heading into that earnings release, stocks were down 39% for the year – and it only got worse from there. The next day, the stock fell another 40%.

As of this writing, Teladoc is down 80% from its early 2021 high. Based on nothing but stock price, one would assume that Teladoc is a failing company. .

In reality, nothing could be further from the truth. Like most companies, Teladoc has its share of challenges, and the stock price reflects that. However, on closer inspection, there are some bright spots in the earnings report. For investors willing to hold for the long term, Teladoc’s future is bright enough to be encouraged. Will that be enough to bring back his stock?

Let’s take a closer look.

Image source: Getty Images.

So what is goodwill impairment?

The headline figure in Teladoc’s 2022 first quarter earnings report was the company’s net loss of $6.7 billion. For comparison, in the first quarter of 2021, Teladoc posted a loss of $200 million. No, that’s not a typo, that’s how big the swing has been year over year. The reason for the substantial net loss was a goodwill impairment charge the company reported this quarter on Livongo, a chronic disease management company it acquired in 2020.

Goodwill is the value of an acquisition that exceeds the sum of the assets purchased. It is essentially the value of the intangible aspects of an acquired business, such as brand recognition or intellectual property. When the value of this intangible asset falls below market value, companies take a goodwill impairment charge. This appears as an operating loss on the income statement as well as a decrease in goodwill on balance sheet.

In this case, the impairment resulted in a reduction of approximately 50% of Teladoc’s goodwill. It is also important for investors to know that this is not a cash expense (no actual cash has left the business as a result of this write down), so it is added back to the cash flow statement therefore it does not affect the company’s cash flow.

How much of a concern are lowered tips?

While goodwill impairment may have grabbed the headlines, it didn’t take much research to find another reason for the extreme market reaction, as Teladoc also lowered its full-year guidance.

Revised Guidance for FY2022

Original orientations for the 2022 financial year

Revenue

$2.4-2.5 billion

$2.55–2.65 billion

EBITDA

(52) to (7) million dollars

$18–48 million

Adjusted EBITDA

$240-265 million

$330-355 million

Net loss per share

($43.50) to $(43.00) per share

($1.60) to $(1.40) per share

Total paid subscriptions in the United States

Unchanged

54.0 to 56.0 million members

Paid access

~25 million

24.0 to 25.0 million

Total number of visits

18.5 to 19.5 million visits

18.5 to 20.0 million visits

Source: Company data. EBITDA = earnings before interest, taxes, depreciation and amortization

The lowering of the company’s net loss per share forecast makes sense; the impact of goodwill impairment will obviously be felt over the rest of the year. However, even with the reduced revenue forecast, mid-term full-year revenue would represent a 20% jump from 2021. Not a bad result considering the revenue growth that has was pulled in 2021 due to pandemic closures. Additionally, there has been little to no change in paid memberships, paid access (those not fully covered by an insurance plan but pay per visit), and total number of visits. This suggests that Teladoc’s initial estimates of these important metrics were accurate.

Earnings positives

Goodwill impairment and lower guidance aside, the results for this quarter were actually quite good.

Q1 2022 Actual

Guidance Q1 2022

Revenue

$565.4 million

$565–571 million

EBITDA

($10.5) million

(23) to (16) million dollars

Adjusted EBITDA

$54.5 million

$51-55 million

Total paid subscriptions in the United States

$54.3 million

54.0 to 54.5 million members

Paid access

25.2 million

24.0 to 25.0 million

Total number of visits

4.5 million

4.3 to 4.5 million visits

Source: Company data.

Of particular note are the results for Total US Paid Memberships, Paid Access, and Total Visits, each of which exceeded or reached the upper bound of the forecast for the quarter. These three metrics were also up 5%, 14% and 35%, respectively, from the prior year quarter. Despite the reduction in guidance for the full year 2022, management still met its targets for this quarter while posting year-over-year growth. That should be worth something to investors.

Result for investors

Management mentioned in the earnings call that its direct-to-consumer mental health service, BetterHelp, did not perform as expected, contributing to revised guidelines. However, the company still expects strong growth and margin contribution from the service, albeit at a slower pace than originally forecast.

Even with this news as well as the reduced forecast, Teladoc still expects 20% revenue growth in 2022, which is strong growth in a growing industry. It’s understandable that Teladoc shares sold off after the first quarter results; you could even say that the 40% drop was justified. That said, Teladoc is still the leader in its space, a position that could lead to outsized long-term gains.

Whether the time is right to buy stocks depends on the will of each investor Evaluation of Teladoc’s potential. For those who believe he can be the winner in this space, stocks are heavily discounted. For those who are skeptical, it’s reasonable to keep Teladoc on the watch list and keep an eye on the upcoming quarters for signs that the company is heading in the right direction.

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Jeff Santoro has positions at Teladoc Health. The Motley Fool fills positions and recommends Teladoc Health. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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