It seems so long ago that Teladoc Health (NYSE: TDOC) was a bit of a market darling. The telemedicine specialist shot to prominence when its services were in high demand -- during the heat of the pandemic -- but it's been pretty much downhill since then.
Teladoc's latest financial results did nothing to help, as the company once again disappointed investors (more on that below). Could Teladoc turn things around? Is it worth it to buy the stock at current levels?
Teladoc's hefty impairment charge
Teladoc's revenue growth rate peaked in 2021 and has been unimpressive at best ever since. During the second quarter, the company's top line declined by 2% year over year to $642.4 million.
That's not the only issue with the company's financial results: Teladoc remains unprofitable. And although it was making some progress on that front, it took several steps in the wrong direction during the second quarter. Net loss per share was $4.92, compared to a net loss per share of $0.40 reported in the prior-year quarter.
In fairness, that was due to a massive $790 million impairment charge related to future cash flow within its BetterHelp virtual therapy segment. However, this isn't the first time Teladoc has had to deal with a similar issue. In 2022, it reported a net loss per share of $84.60 due to an impairment charge related to its 2020 acquisition of Livongo Health. These noncash charges won't affect the company every quarter -- but they have affected it enough in recent years to make investors worry that it won't turn a profit anytime soon.
Maybe the market would ignore these issues if Teladoc's sales growth was still strong...which it isn't. There are problems elsewhere for the company. During the second quarter, its total number of visits declined by 11% year over year to 4.2 million. Its BetterHelp segment ended the period with 407,000 members, a decline of 14% year over year. BetterHelp used to be one of the stronger segments for the company; Teladoc poured millions into marketing and advertising to capture a large share of the online therapy market.
But the company's efforts aren't bearing fruit nearly as much as it thought they would. While the integrated care segment ended the period with 92.4 million members -- an increase of 8% compared to the year-ago period -- its average monthly revenue per U.S. member in this unit dropped by 4% year over year to $1.36. There wasn't much to celebrate for the telemedicine specialist.
There could be a path forward
Though Teladoc's business is struggling, several factors could help it turn things around.
First, it's difficult to ignore the company's large ecosystem, which includes over 400,000 members in its BetterHelp service, 1.17 million in its chronic care program, and over 92 million in its integrated care unit (there is some overlap between those three categories). One growth opportunity Teladoc could exploit, even without growing its user base, is to increase the adoption of various services by existing members.
The company also plans to add new services to its ecosystem. That's one thing the company's new CEO, Charles Divita, intends to do. He took the position in June, and during the second-quarterearnings conference call-- his first at the head of Teladoc -- he said: "Over 92 million people in the U.S. have access to one or more of our products today, and we intend to increase our ability to serve additional needs over time."
Also, Teladoc's margins remain incredibly high. Adjusted gross margin for the second quarter was 70.7%, roughly flat compared to the year-ago period.
Aside from the Q2 impairment charge, Teladoc's advertising and marketing costs have consistently been among the highest. If it can keep those expenses in check -- perhaps once it becomes better established and builds a solid moat -- that will work wonders for the bottom line.
It's also worth noting that, according to estimates, the telemedicine industry will continue to expand. Teladoc should be in a decent position to take advantage of that over the long run.
That said, the stock looks risky -- given what has transpired over the past few years, its current financial results, and the stiff competition it faces, especially for its virtual therapy service. Teladoc might bounce back with its new CEO at the helm, but at this point only investors with a healthy appetite for substantial risk should consider initiating a position in the stock.
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Prosper Junior Bakiny has positions in Teladoc Health. 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.
