1 Green Flag and 1 Red Flag for Teladoc

The early days of the pandemic offered Teladoc Health (NYSE: TDOC) a big boost to revenue -- and share-price performance. People opted to stay close to home. And what better time to try telemedicine?

As a result, Teladoc's revenue and visits rose in the triple digits. And the company's shares soared 250% from the start of 2020 through their peak in February of 2021.

Since then, various concerns have weighed on the stock price. Most recently, the company announced a $6.6 billion non-cash goodwill impairment charge. That implies Teladoc paid more than it should have when it acquired Livongo back in 2020.

So far this year, Teladoc shares have dropped more than 60%. As we head toward the second half of the year, we might wonder if the company is ready to recover. Let's check out one green flag -- and one red one.

A doctor smiles and speaks to a patient during a telemedicine visit.

Image source: Getty Images.

The green flag: Key metrics are on the rise

Teladoc's impairment charge in the first quarter clearly disappointed investors. But the company also reported a batch of good news that shouldn't be ignored. Let's go through a few of the key metrics that bode well for Teladoc's growth.

Importantly, Teladoc's revenue and visits continue to increase. They climbed by 25% and 35%, respectively, in the quarter. This shows people still are turning to telemedicine even though we're no longer under lockdowns and similar restrictions. Telemedicine wasn't just a pandemic-driven trend.

Teladoc's plan to grow revenue involves increasing the number of paid members and revenue per member. So far, the company is showing it can do this.

From the first quarter of last year through the first quarter of this year, both metrics have climbed from quarter to quarter. Over that time, Teladoc has increased U.S. paid members to 54.3 million from 51.5 million. And revenue per U.S. member rose to $2.52 from $2.09.

The number of chronic-care members also has been rising steadily from quarter to quarter over the past year. This is a key audience because chronic-care members tend to sign up for multiple programs. Teladoc says that 27% of those members now are involved in more than one program. That's up from 15% in the first quarter of last year.

All of this supports the idea that Teladoc is growing -- and growth is far from over.

The red flag: profitability may be a challenge

Customers are flocking to Teladoc, but the company still may be far from reaching one major goal -- profitability. A warning sign: The company hasn't been able to progressively widen its margins.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin fluctuated in the range of 12.5% to 13.9% last year and dropped dramatically to 9.6% in the first quarter of this year. Failure to widen margins will make it difficult for Teladoc to reach profitability -- even as revenue increases.

The goodwill impairment charge probably was a one-time thing, but some of the trends Teladoc noted may continue. The company said smaller rivals were bidding up online advertising slots. And these players also have been allowing the prescription of controlled substances during online visits. This is something Teladoc won't do.

Regulators have given the nod to the practice during the health crisis only. Teladoc also said it's been taking benefits managers longer to sign chronic-care contracts because their focus has been on the return to offices.

These three issues should be temporary, and that's good news. But if they persist for too long, they could seriously delay profitability.

Which flag may dominate?

It's impossible to predict when Teladoc shares will recover. It's clear some of the challenges I've mentioned won't disappear overnight, and this may hurt the stock in the near term -- or cause it to stagnate. Investors might prefer waiting for signs that the company is on the mend before deciding to scoop up shares.

But once Teladoc does offer a couple of positive signs, the green flag mentioned above may stand out. If the company can manage the short-term problems and lift margins, the future could be bright. It's already shown that members like its services and are sticking with it. So even if Teladoc stock doesn't recover immediately, there are reasons to be optimistic about this healthcare player over time.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Teladoc Health. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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