The telemedicine company Teladoc Health (NYSE:TDOC) has experienced a sharp decline in its stock price following the news of Amazon’s expansion into the telemedicine market. While Teladoc Health has shown improvements in its BetterHelp segment and Integrated Health segment, the entrance of a major player like Amazon poses significant challenges for the company’s future growth.
Teladoc Health offers telemedicine services for primary care, mental health, and chronic condition management. The company operates in two segments. Its Integrated Health Segment provides general medical, medical secondary opinions, chronic condition, and mental health services to organizations, earning revenue from per member per month (PMPM) access fees and visit fees. The BetterHelp segment is a direct-to-consumer business, where individuals pay a monthly access fee to be connected to Teladoc’s network of therapists via a mobile app, web, phone, or text.
Last year, access fees accounted for approximately 87% of the company’s revenue.
Q2 Results and the Amazon Threat
In the second quarter, Teladoc Health saw improved adjusted EBITDA margins in both its BetterHelp and Integrated Health segments. BetterHelp specifically experienced an 18% revenue growth to $292.4 million and an adjusted EBITDA of $34.2 million, up 71%. However, the company expects growth in BetterHelp to decelerate in the second half of the year due to lower ad spending and has not fully recovered its margins to 2021 levels.
The emergence of Amazon Clinic as a telemedicine offering in all 50 states has raised concerns among investors. While Teladoc Health primarily targets businesses, Amazon Clinic focuses on the individual market. Amazon Clinic prices range from $30 for messages to over $70 for video visits, without accepting insurance. Moreover, Amazon may use this service to drive prescriptions to its online pharmacy.
Although Teladoc Health and Amazon cater to different customer bases, increased competition in the telemedicine market can ultimately lead to pressure on Teladoc’s PMPM fees. The company already faces competition in its BetterHelp segment.
Teladoc Health currently trades at an 11.8x EV/EBITDA multiple based on the 2023 EBITDA consensus of $309.9 million. Looking at the 2024 EBITDA consensus of $351.6 million, the multiple decreases to approximately 10.4x. The company is projected to achieve nearly 10% revenue growth this year and 8% growth next year.
While Teladoc Health’s valuation presents an attractive proposition, considering the $200 million per year in stock-based compensation expenses alters the perception of its affordability. As a result, the market remains cautious about Teladoc Health’s prospects with the looming threat of Amazon. Investors are hesitant to give the company the benefit of the doubt, resulting in a neutral stance on the stock.
Teladoc Health has experienced significant volatility in its stock price due to solid quarterly results being overshadowed by concerns about competition from Amazon. While the threat may be overstated, Teladoc Health could face price pressure in the future. Additionally, its BetterHelp segment is facing increased competition. From a valuation perspective, Teladoc Health initially appears attractive, but considering stock-based compensation expenses, the picture becomes less favorable. As a result, a neutral stance on the stock seems appropriate at this time.