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Where next for Teladoc shares after their 88% collapse?

Teladoc shares fell by 45% in a single trading session last week, as it booked a $6.6 billion goodwill impairment charge.

Teladoc's (NYSE: TDOC) share price was initially one of the big winners of the covid-19 pandemic, as patients jumped on the chance to be evaluated remotely.

Accordingly, Teladoc shares shot up from $83 at the start of 2020 to $294 by mid-February 2021. But since then, they have fallen by 88% to $34 apiece.

Teladoc share price: Q1 results

Last week’s Q1 results were disastrous for the US healthcare stock, sending Teladoc shares plummeting by 45% in a single trading session.

This new fall can be attributed almost entirely to its ‘net loss per share of $41.58, primarily driven by a non-cash goodwill impairment charge of $6.6 billion or $41.11 per share.’

Overall, the NYSE healthcare stock made a net loss of close to $6.7 billion. And for comparison, Teladoc lost $1.31 per share and generated a net loss of $199.6 million in Q1 2021. Moreover, the Refinitiv average analyst forecast was for a loss of $0.60 per share.

Positively, revenue increased by 25% year-over-year to $565.4 million. Access fees revenue grew by 29% to $491.3 million and visit fee revenue rose by 12% to $67.9 million.

And in its largest market, the US, average revenue per paid member increased to $2.52 in the first quarter of 2022, up $0.43 year-over-year and $0.03 quarter-over-quarter.

Despite the shock impairment, CEO Jason Gorevic stressed that ‘Teladoc Health continues to be the global leader in transforming healthcare, delivering personalized, flexible and efficient whole-person care at scale for millions of consumers and patients while meaningfully reducing costs across the healthcare system.’

Where next for Teladoc shares?

Teladoc has reduced its full-year guidance range for 2022. It now expects to generate between $2.4-2.5 billion of revenue, downgrading its previous guidance of $2.5-2.6 billion.

Gorevic blamed ‘higher advertising costs in some channels (that) are generating a lower-than-expected yield on our marketing spend’ for the disappointing performance of its BetterHelp direct-to-consumer mental health unit.

He also noted that ‘in the chronic condition market, we are seeing an elongated sales cycle as employers and health plans evaluate their long-term strategies.’ In plain English, updating employee healthcare plans is not a priority for many struggling firms right now.

However, these are short-term problems and not indications of a poor product or service. In addition, Teladoc expects significant revenue growth through 2022, driven in part by these two units.

But the company was already struggling with investor worries about competition, especially from smaller rival Amwell, and in the long term, from Amazon nascent Care business.

Of course, the primary concern for investors is the $6.6 billion goodwill impairment. But Teladoc’s strategy to care for the ‘whole person,’ including physical and mental health, and central to this is its expansion into chronic healthcare.

Accordingly, it purchased chronic condition specialist Livongo in 2020 for $18.5 billion. Now, the goodwill nature of the impairment charge is a tacit admission that Teladoc significantly overpaid for its acquisition. However, the case is not yet clear-cut, as Livongo is still being integrated into Teladoc’s platform and could eventually help turbocharge growth.

It’s worth noting that the strategy is working from a revenue standpoint; and with 78% of total Q1 sales multiproduct, most customers are using Teladoc for multiple healthcare needs.

Cathie Wood’s ARK Invest is the largest shareholder in Teladoc through its various Exchange Traded Funds. And despite the Q1 share price collapse, the conviction investor bought an additional 600,000 shares, arguing that ‘Teladoc is becoming the healthcare information backbone of the United States… a category killer during the next five to 10 years.’

But Jason Benowitz at Roosevelt Investment Group warns ‘aggressive growth managers that benefited by holding pandemic winners over the last two years may struggle in the current environment, and ARK is no exception.’

Wood’s other household name tech holdings, including Zoom, Block, Coinbase, Roku, and Spotify, have suffered massive drops over the past few months.

But Teladoc is still expecting to continue with rapid revenue growth. And despite not yet turning a profit, the impairment charge is now baked into its current share price.

Gorevic is ‘confident in our strategy, along with our breadth and depth of capabilities.’ Teladoc’s share price could make a swift recovery soon.

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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