January 11, 2017 | 9:20 AM by Jaguar | avo@jaguaranalytics.com

Teladoc (TDOC) – 21st Century House Calls

Teladoc (TDOC) is a telehealth company offering on-demand healthcare anywhere, anytime via telephone or video, internet and mobile devices. Operating exclusively in the United States, the company was founded in 2002 and now counts over 3,100 board-certified physicians and behavioral health professionals who can treat a wide range of conditions. At their discretion, the practitioners can also prescribe medication, refer patients to family doctors or give advice on what would be the best course of action depending on an individual’s condition and urgency.

On January 9th, management held a presentation at the 35th Annual J.P. Morgan Healthcare Conference where they announced updated membership and patient visit numbers along with preliminary FY2016 results and FY2017 outlook. Teladoc also announced their partnership with Analyte Health which will enable them to provide members with enhanced laboratory diagnostics services through their platform, and grant their physicians the ability to order tests directly.

Is There a Doctor in the House?

Teledoc’s premise is simple: contact them by phone or internet with a summarized description of the health issues and preferred communication method, photos can be uploaded if needed for diagnosis. Within a short time, a physician will return the call to assess patient condition and take whatever course of action is necessary, which could include prescribing medication or a recommendation to seek immediate help. Teladoc claims the median response time as 15 minutes, far faster than any visit to a hospital would entail.

Aside from reducing, or in most cases eliminating the need to go to a doctor’s office, members who have access to this service can reach healthcare professionals 24 hours a day, year-round. The foremost benefit in this is time saved in traveling to and from the doctor’s office or emergency room, and for those in their workplace, a consultation that can be arranged during a break period would eliminate the need to either take time off or go at the end of a shift. Completing the time-saving theme, patients can have a pharmacy deliver medication to their location. Unarguably, the convenience of Teladoc is advantageous to anyone who can partake in its services.

 Increasing Metrics

During their presentation that was mentioned at the outset, management reported preliminary FY2016 revenue of approximately $123 million, above consensus estimates at $122.18 million. FY2017 revenue was guided at $180-$185 million, with consensus expecting $185.83 million. The company reaffirmed its target of break-even, adjusted EBITDA in 4Q2017.

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Total membership is forecast to be 21.5 to 23 million, a 27% increase over FY2016, and total visits are expected to reach 1.4 million to 1.45 million, around 50% increase at midpoint.

Current membership stood at ~17.5 million and total visits at ~952,000 at the time of the presentation, both numbers having seen appreciable growth since 2013. Despite the lower incidence of flu-related illnesses recorded by the CDC for this winter (so far), Teladoc reported having surpassed the 2 million patient-visit mark in December, which, according to Cantor Fitzgerald calculations, suggests that the upper range of guidance for 4Q2016 is achievable.

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Increasing Revenues

With the growth in members and visits, revenues have increased as well. Furthermore, cost of revenue has decreased its pace with a flattening over the past four quarters. SG&A expenses still remain high as the company pushes for new clientele.

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Huge Market Opportunity

Telehealth Total market Opportunity is estimated to be over $29 billion with less than 1% penetration at this time. This represents huge growth potential for Teladoc as it dwarfs all its top three competitors combined with a firm grasp of over 76% market share.

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Mergers and Acquisitions

In order to expand their geographic range, increase counseling and therapy services, and improve their mobile engagement, TDOC also has made five acquisitions since 2014, with their latest one (HealthiestYou) waiting to close. All these mergers have helped with top-line growth and continued membership and patient visit increases.

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Points to Consider

As a growing company in a relatively new field, Teladoc is still spending a fair amount of money to reign in new accounts and as such, it has not yet posted any positive earnings per share. This is expected to continue unchanged until 4Q2017, the target set by management for a swing from negative EPS. As well, to maintain their competitive advantage and very high market share, further M&A activity should be expected and to that end, the company has filed a shelf offering of 2 million shares priced at $300 million which could be brought to market at any time to raise funds.

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With an impressive list of Fortune 1000 companies as clients, their quest continues to engage more health providers in including telehealth services as part of their coverage package.

Analyst Coverage

According to Teledoc’s information, there are 12 firms providing analyst coverage. The most recent ones are as follows:

  • January 10th 2017: Chardan Capital reiterated Buy rating, price target $24
  • January 5th 2017: Cantor Fitzgerald initiated with Outperform rating, price target $25
  • January 4th 2017: Canaccord Genuity initiated with Buy rating, price target $24
  • December 20th 2016: Oppenheimer reiterated Outperform rating
  • November 28th 2016: Craig Hallum initiated with Buy rating, price target $24

Final Observations

Teladoc keeps pursuing market opportunities and associations with insurers as well as individual companies. They offer an excellent product that posts a 95% satisfaction level by its own team of physicians and has managed a 98% retention rate. For any person that’s had to sit in a waiting room for long, boring, uncomfortable periods of time while paging through 7 year-old publications, the prospect of having a medical professional respond to their query within twenty minutes is an offer that would be hard to refuse.

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