Teladoc’s (NYSE:TDOC) stock growth is slowing, its losses are increasing, and its advertising, sales and marketing costs are jumping.
I believe that these trends are all signs that the company is being hurt by the tough competition that I’ve warned about in the past. Meanwhile, the easing of the pandemic is probably hurting the company as well. Given these points, I continue to recommend selling TDOC stock.
Although the company does have some positive catalysts, including its partnership with CVS (NYSE:CVS) and its strong brand name, the shares remain tremendously overvalued, despite their recent pullback.
Multiple Signs of Tough Competition
Teladoc’s top line climbed 81% year-over-year in the third quarter, down from 109% in Q2. Its number of visits and sessions increased 27% from a year ago, way down from a 64% year-over-year jump in Q2.
And its platform-enabled sessions came in at 969,000 in the third quarter, versus slightly over 1 million in Q2. Meanwhile, its paid U.S. membership increased by only 500,000, or less than 1%, between the end of Q2 and the end of Q3, reaching 52.5 million. On a year-over-year basis, U.S. paid membership increased by only 2% in the third quarter.
Turning to the company’s expenses, Teladoc’s advertising, marketing and sales expenses all jumped a great deal in Q3. Its advertising and marketing costs jumped to $5.24 million versus $1.64 million during the same period a year earlier. And its sales costs rose more than 500% to $17.5 million, versus $3.27 million during the same period a year earlier.
In light of all of the above information, it’s not surprising that Teladoc’s third quarter EBITDA, which excludes most non-cash losses, dropped to -$8.67 million in Q3, down from $6.79 million during the same period a year earlier. So, even as some fear of the novel coronavirus remains, the company is still losing a significant amount of money.
More importantly, as I’ve suggested earlier, Teladoc’s disappointing growth metrics, in tandem with its rapidly growing expenditures, increases my conviction in my theory that the company is facing extraordinarily tough competition.
Teladoc’s Positive Catalysts
During Q3, the company announced that it had concluded deals with CVS and health insurer Centene (NYSE:CNC). Under the agreements, the two large companies will offer Teladoc’s Primary360 telehealth program. In its Q3 earnings press release, Teladoc noted that it has relationships with leading national health plans.
Additionally, Teladoc reported in the earnings release that its telehealth offerings were ranked first in consumer satisfaction by J.D. Power’s recent Telehealth Satisfaction Study. This data point suggests that the company has the leading brand within the U.S. telehealth sector.
3 Bearish Assessments of TDOC Stock
On Nov. 21, David Grossman, an analyst at Stifel, cut his price target on TDOC stock to $135 from $153. He projects the stock could fall due to investors’ lack of confidence in its longer-term outlook. He kept a “hold” rating on the shares.
And on Nov. 22, BTIG cut its rating on TDOC stock to “neutral” from “buy.” The firm cited its outlook for slow membership growth over the long term, along with what it sees as the stock’s elevated valuation, as two reasons for the downgrade.
Finally, in a Nov. 26 article, Investor’s Business Daily gives TDOC stock a composite rating of 15 on a 99 scale.
The Bottom Line
TDOC stock is changing hands for 7x analysts’ average 2022 revenue estimate for the company. Given Teladoc’s intense competition, slowing growth, and lack of profitability, that price is way too high for the shares.
Consequently, the stock is a “sell” at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.