Jeff Bezos began his letter from 2001 Amazon.com (AMZN -14.05%) Shareholders with a one-word sentence: “Ouch.” He chose to begin his annual letter this way because the company’s stock price had fallen more than 80% over the past 12 months.
But Bezos thought many investors were giving up on Amazon too soon. He noted that the company’s underlying business remains strong — in many ways stronger than ever. Of course, his optimism in the face of overwhelming pessimism proved justified.
I was thinking about that shareholder letter on Thursday Teladoc health (TDOC 0.75%), the stock plummeted following the company’s first-quarter update. Are investors all wrong with Teladoc? Absolutely.
Image source: Getty Images.
100% trust
You may be wondering how I can be so sure investors are wrong about Teladoc. My reasoning is that at least some investors are wrong about every stock that is bought and sold. I can say that 100% because in every stock transaction there always has to be a buyer and a seller.
Many investors panicked about Teladoc this week. They saw that the company posted a staggering $6.67 billion in net loss in the first quarter. And they worried that Teladoc might downgrade its 2022 outlook. Because of these concerns, they sold the stock.
However, other investors viewed the sell-off as overdone. They were more than happy to buy Teladoc stock at a steep discount from where the stock was trading just a day earlier.
One of these groups of investors will prove wrong over the long term. But which group?
Different dynamics
Teladoc isn’t in the same position Amazon was in 2001. Bezos was able to point to the company’s accelerating growth. Amazon even had the highest customer satisfaction score for a service company in the history of the US Customer Satisfaction Index.
However, Teladoc appears to be in better shape than panicked sellers are realizing. The company’s huge loss in the first quarter was almost entirely due to a $6.6 billion impairment of goodwill. This write-down shows that Teladoc overpaid to acquire Livongo in 2020. But aside from the impairment, Teladoc has comfortably beaten Wall Street’s expectations. Overall, the result also continued to trend in the right direction.
Also, Teladoc cut its 2022 revenue guidance by just less than 6% at the midpoint of the guidance range. The company continues to expect revenue growth in the region of 20%.
Teladoc cut its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by 26% at the midpoint of its range. However, the main reason for this — a lower expected ad yield for its BetterHelp mental health business — is likely to be a temporary issue. New, smaller competitors are raising the cost of search advertising in what Teladoc CEO Jason Gorevic called in the company’s first-quarter earnings call “commercially irrational decisions” that won’t be sustainable.
uncertainties
There are two uncertainties for Teladoc that I think are particularly important right now. First, no one (including management) knows how long the headwinds for BetterHelp will last. Second, Teladoc isn’t sure how much of its late-stage chronic disease pipeline it can close, or how quickly it can close deals.
Gorevic expressed confidence in the first-quarter earnings call that the eventual reintroduction of restrictions on the delivery of controlled substances via telemedicine will leave some of BetterHelp’s competitors behind. BetterHelp should emerge victorious if and when that happens.
He also liked Teladoc’s prospects in the chronic disease market. The company’s late-stage pipeline is large. Gorevic believes that Teladoc’s integration of Livongo into its full-person virtual care platform should also pay dividends.
If these assumptions are true, investors who have left Teladoc could regret it over time. And with the stock now trading at less than double futures sales, investors backing Teladoc likely like their chances.