Telehealth: an explosive growth industry experiencing accelerated adoption post Covid

Telehealth — sometimes called telemedicine — is the use of technology to provide healthcare when the patient and the doctor are not in the same place at the same time. The industry is experiencing high consumer demand which has remained significantly higher than pre-Covid-pandemic levels. According to a recent study by McKinsey, the market opportunity for telehealth adoption in the US alone could be up to $261 billion.


The telehealth industry is still in its infancy and subject to many barriers like accessibility, quality, as well as regulatory and partial reimbursement restrictions. In 2020 the global telehealth market was valued at $62.45 billion and is forecast to grow at a CAGR of 26.5% until 2026, with North America accounting for $36.6 billion in annual spend. Analysts are expecting the US market to grow at a CAGR of close to 30% until 2026 which would result in a market size of >$150 billion by 2026.

Most people view telehealth as simply a less than optimal digital solution to healthcare provision, and, beyond the unnatural conditions of the pandemic, Telehealth is seen by many as really only applicable to a small cross-section of consumers. What I feel people misunderstand about the telehealth industry is that it’s not just about the convenience of not going to a doctor’s appointment: telehealth actually helps to alleviate major healthcare system constraints, e.g., hospital beds and physician visiting hours while allowing far better provision for chronic illnesses or mental health care.

Overall, there are 3 key determinants of growth for the sector: 1) consumer demand and acceptance, 2) provider willingness and ability to offer telehealth on a more regular basis, and 3) regulatory changes supporting necessary access and reimbursement.

In terms of consumer demand, a McKinsey report showed that, in April 2020, right after the COVID pandemic hit the world, telehealth utilisation was 78 times higher than in February 2020.

Source: McKinsey

Now that the pandemic is having less of an impact as vaccines have become widely available, and lockdown restrictions are being lifted, telehealth use is still at significantly higher levels than pre-pandemic. Telehealth utilisation has now stabilised at levels 38X higher vs. pre-pandemic. At the beginning of the pandemic, more than 32% of office and outpatient visits were occurring via telehealth in April 2020. Now utilisation levels have largely stabilised with up to 17% of all outpatient/office-based visits being delivered virtually or virtually enabled.

Similarly, perception of telehealth usage has continuously improved. Around half of the consumers intend to continue to use telehealth going forward, up from 11% prior to COVID-19.

Source: McKinsey

However, there is still some concern, especially on the consumer side on the quality, safety and accessibility of the technology, the latter being especially true for elderly people. Telehealth care delivery models are likely to adapt to such barriers by means of extending their platform offerings from fully virtual care delivery to offering also hybrid virtual and technology enabled in-person care delivery to really break down such barriers.

On the provider side, McKinsey suggests that more than half (58%) of doctors view telehealth more favourably now than they did before the COVID pandemic. Looking at actual utilisation, 84% of doctors are now offering virtual visits. It has become clear, however, that costs of care delivery and reimbursement regulations are important aspects to consider moving forward.

Also, from a regulatory standpoint, things have progressed in favour of making telehealth a permanent care delivery option, enabling access and reimbursement for a range of telehealth services. For example, the Centres for Medicare & Medicaid Services have expanded coverage on reimbursable telehealth services in the 2021 physician fee schedule final rule.

In conclusion, I believe the telehealth industry is likely to continue to grow at a fast pace and only a few players will be able to scale their services to the level needed to make the most of this gigantic market opportunity. Within this attractive industry context, today I would like to tell you about a leading player in this field now trading on a very compelling valuation.

Equity Research Report

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Business Description

Teladoc Health, Inc. is the World’s first and largest telemedicine and virtual healthcare company based in the United States. Teladoc Health was launched in 2002[9] and has acquired companies such as BetterHelp in 2015, Best Doctors in 2017, and Advance Medical in 2018. It is active in 130 countries and is NYSE listed.

Primary services include telehealth, medical opinions, AI and analytics, telehealth devices and licensable platform services. In particular, Teladoc Health uses telephone and videoconferencing software as well as mobile apps to provide on-demand remote medical care.

Huge Market opportunity For Teladoc, The Industry Leader

In terms of its provider network, Teladoc is already operating at a significant scale with its network of 10 thousand care providers and more than 76 M members in the US alone as of Q3 2021. And management sees a long runway of member growth ahead with currently 92m people (~31% of insured lives in the U.S.) having access to a Teladoc product, and ~63m additional potential customers to grab from existing clients, managed care organisations and Medicare & Medicaid Fee-for-Service lives.


Management also believes that the opportunity across the 92 Mio individuals who currently have access to one of its services constitutes at least a $75bn annual revenue opportunity, with significant upside to $137bn if customers would opt for multi-product adoption across Teladoc’s services portfolio.


All of this also contributed to the fact that Teladoc ranked highest among direct-to-consumer providers in the J.D. Power 2021 U.S. Telehealth Satisfaction Study nearly 30 points above the category average, outperforming all other providers. Teladoc is continuing to provide industry-leading quality of services while expanding geographically and from a product-offerings perspective which is key to maintaining its leadership position moving forward.

Teldoc is ideally Positioned to Benefit

With the above in mind, it becomes obvious that Teladoc has positioned itself as the leader to capture the significant market opportunity in virtual care delivery as its services address almost every area of virtual care delivery.


Long Term Growth Strategy Solving problems of the physical system, not substituting it

There is a widespread misconception of what Teladoc wants to become over the long term. Many investors think that the company wants to substitute the physical healthcare system, but this is far from true.

What the company aims to do is to complement the physical system, virtualising everything that can be virtualised and being the front door to physical care. This will be much more convenient for patients and for the system as a whole as this new improved system will generate savings in one of the most inefficient industries worldwide. In this new industry, Teladoc is several steps ahead of the competition.

The Teladoc of the future will be an integrated ecosystem that delivers whole-person care through a value risk-based business model. Working under a value risk-based business model is important because it will align Teladoc’s interests with that of customers and patients, allowing the company to become not a vendor but a strategic partner for many of its customers. Before being able to achieve this long-term vision there is one pain point that management has to tackle: how to connect seamlessly with the physical delivery system. During Investor Day, management was quite explicit in talking about the strategy they would follow to connect to last-mile delivery although it was not the first time that management has talked about it.

Teladoc will not offer last-mile delivery in-house as this would negatively impact margins and would significantly increase operational complexity. The company aims to connect to last-mile delivery through partnerships with third parties.

There are evidently some things in healthcare that can’t be conducted virtually but they can on many occasions be diagnosed virtually to avoid “wasting” the patient’s time. Not everybody has a hospital, clinic or primary care five minutes away from their home and just the process of going to the hospital/clinic/primary care and coming back can take much longer than the visit itself. And there are even more problems if you are a single parent or challenged when it comes to walking.

Virtual care also solves another important problem of the physical system: waiting times. When you go to a hospital you are constrained in some sort of way to the physicians that are available in that hospital or clinic and their agenda. The average waiting time to get an appointment with a primary care physician in the US is 19 days. For Teladoc, it’s 10 minutes. That’s one question (and answer) in this very interesting quiz on Teladoc’s website. I think anyone interested in the stock should take this quiz to see the value proposition and to evaluate the value Teladoc can bring.

In addition, there are important implications for the patient’s health, not just his/her comfort. Virtual care has the potential to be proactive rather than reactive. Having a huge set of data, as Teladoc has, is key to driving actionable insights for patients to allow them to take control of their health in a proactive way, preventing symptoms rather than having to mitigate them once they occur.

This vision is only attainable if Teladoc is able to drive multi-product adoption across its member base. Multi-product adoption relies heavily on whole-care products such as myStrength Complete and Primary360 as these products provide a much wider set of data per patient.

Primary360 demo - Big cross-selling potential

The management team recently showed investors a full demo of its impressive Primary360 product. If you want to watch it you can do that in the webcast that you can find here. The demo takes place from minute 85 to minute 105. The demo highlights the cross-selling potential that this product has as Teladoc is able to offer patients personalised actionable insights thanks to its large (and increasing) data set.

Source: Investor Day WebCast

Livigno Acquisition – Blueprint to Shape Teledoc’s Combined Future Service Offering

In midst of the pandemic, Teladoc made a key strategic acquisition by buying Livongo, a leader in the virtual diabetes and chronic disease management space. In the past, doctors could often only tell their patients that they have a high chance of a serious health incident, but with the wide variety of health wearables now available, data can be used to better prevent sudden health crises. This is the main reason why Teladoc acquired Livongo. Livongo is used to working with AI and if its diabetes patients have abnormal glucose levels, they get an alert or a phone call from a diabetes coach. If no one answers, up to five contacts around you can be called. If they don’t know anything or can’t be reached, an ambulance is sent right away. This has saved lives. This acquisition gives Teladoc access to key technologies that can be leveraged within its other services, including the recently launched mental health service, myStrength Complete.

Many analysts hold that Teladoc overpaid for the Livingo acquisition but there is another important strategic angle to this acquisition which is being overlooked. Each Livongo patient has a diabetes coach and he or she can call that coach anytime he needs support. That can be with practical questions about diabetes and diet for example, but also for psychological support or advice about what to do if the patient has a bad day because of their diabetes. Coaches can also help to see recurring patterns, helped by the data that are collected and throughout the day, you get health nudges. For example, a health nudge could be: ‘It would be better for you to walk 10 minutes now.’ Health nudges are deducted from your personal data as well. A similar system of AI and coaches, combined with doctors is the long-term plan for Teladoc so Livongo helps shape and realise Teladoc’s future service offering so this is obviously hugely valuable to the group as a whole.

Better Help Acquisition – Mental Healthcare Huge Growth Opportunity

Teladoc acquired BetterHelp six years ago for a mere $4.5 million and its subsequent growth has been nothing short of spectacular: BetterHelp is on track to generate $100 million in revenue in FY21 just from international alone and it is still founder-led (by Alon Matas).

Source: Teladoc Investor Day Presentation

In the same way as chronic care, mental health is a gateway for multi-product adoption. This is because people with mental problems are more likely to suffer from another condition because mental health impacts physical health. Having BetterHelp helps Teladoc land patients whom they can later cross-sell to more easily and this of course strengthens the whole-care long-term vision of the company.

"When you start with mental health, you are statistically more likely to use 2+ services and become a multi-service user over time." Stephany Verstraete (Chief Marketing and Engagement Officer) on the Investor Day Webcast

Having a sticky product is really important but it’s useless unless you are able to attract members in the first place which is exactly where mental health plays an important role. This, added to the fact that mental treatment is recurring in nature makes mental health a really important component of the long-term thesis.

International Expansion Opportunity

Teladoc is further expanding in the US but also internationally which is key to maintaining and build out its leadership position:

Strong Recent Financial Results

Teladoc recently reported a very strong set of Q3 results:

  • Revenue growth of 81% YoY to $522 million, and adjusted EBITDA of $67.4 million, growing by 71% YoY.

  • Revenue growth was driven by +99% YoY growth in access fees revenue and +18% YoY growth in visit fee revenue. Growth in the US came in at 89% vs. 17% growth for international geographies. The difference between US and international is partly historical but was also impacted by the acquisition of Livongo, which is only available to US customers at the moment.

  • Total visits for the quarter reached 3.9M at a 37% YoY growth rate, showing an acceleration from around 28% growth in the previous quarter, and driven by a 40% increase in US visits vs. 19% growth for international visits.

  • U.S. Paid Members gained ~2% YoY in Q3, which is a deceleration from the prior-year growth. However, it is good to see that Paid Members and PMPM (per member per month) fees are continuing to trend upwards in parallel as both are two important metrics that together will drive top line growth moving forward.

  • Most importantly, the percentage of chronic care members enrolled in more than one program has grown 3x year-over-year to 24% in the most recent quarter, while more than 40% of telehealth members have access to multiple products compared to less than 10% in 2017.


  • Looking at profitability, net loss for Q3 more than doubled from the prior-year quarter to reach $84.3M. The lack of profitability is one of the most frequently raised concerns by investors. Net loss for Q3 was mainly driven by stock-based compensation (SBC), mostly in relation to the recent Livongo acquisition. Teladoc actually reported positive adjusted EBITDA when excluding SBC (which accounted for 85% of the quarter’s net loss) and some other smaller items. The impact from SBC on profitability is expected to decrease over the coming quarters, and when it does we expect Teladoc to make significant steps towards GAAP profitability.

  • Teladoc is already showing its cash-generating potential as the company posted a positive operating cash flow of $111 million over the past 9 months, which increased the overall cash position to $823.8M.

  • The company raised the lower-end of its FY2021 guidance to $2.015B - $2.025B and guided for $2.6B revenue for FY2022. TDOC expects significant revenue growth from FY2022 onwards, by offering its Primary360 services to Aetna and Centene’s (CNC) members by Q1 '22.

A Clear Beneficiary of Covid

It is clear that the pandemic accelerated the growth of telehealth along the lines we saw elsewhere in online shopping and video conferencing industries. The pandemic necessitated a huge surge in telehealth usage, but it also showed many customers and patients that had never used it before how convenient it is. This continued usage of telehealth is illustrated by the growth of the business from very high pandemic affected levels during a period which saw an easing of Covid restrictions: visits grew 37% during the last quarter of 2021 compared to a year earlier. This surge was mostly related to non-infectious diseases, which evidences further that telehealth has a wider set of use cases than just COVID.

In their recent presentation, Teladoc management also provided other stats to outline that the growth story of Telehealth is far from over even in a post-pandemic environment:

Source: Teladoc Investor Day Presentation

The fact that 99% of employers are planning on maintaining or increasing investments in virtual care just shows that they must find it more convenient and cost-saving, even though they no longer have to offer these services virtually (i.e., people can go back to physical care if they wish).

Post Covid Slowdown?

In the past five years, TDOC grew its revenue at an impressive CAGR of 72.14%. Post-pandemic, it is obvious that TDOC is experiencing a deceleration in its growth, partly due to the re-opening cadence in the US. Nonetheless, it is reasonable to see this as a normalisation from the rapid growth experienced during the COVID-19 pandemic boom rather than a sign of the company going ex-growth. This is because the global telemedicine/ virtual healthcare market is still expected to grow from $40.2B in 2020 to $431.8B by 2030, at a CAGR of 25.9%.

Growth this year is also coming from new partnerships. In the FQ3 '21 Earnings Call, TDOC announced major contracts with CVS Health and CNC. The nationwide launch of TDOC’s Primary360 through Aetna insurance and CNC will take place by early FY2022. For CNC, TDOC will provide virtual health care in Michigan, Mississippi, South Carolina, and Texas. Primary360 will offer TDOC’s full suite of healthcare offerings, including virtual primary care physicians, virtual specialties such as dermatology and mental health, and local in-person healthcare providers when necessary. CNC Members will pay $0 visit costs for all virtual healthcare through TDOC’s Primary360 service. In addition, select in-person lab works and services will be at $0 co-pay when referred by a virtual healthcare provider. As a result, I expect high uptake rates amongst Aetna’s and Centene’s members, which will significantly improve TDOC’s revenues from FY2022 onwards.

Forward Guidance - The Hot Topic

Someone who hasn’t watched Teladoc’s Investor Day might think that management said something very negative about the future of the company during the presentation given the very harsh price reaction that followed. However, there were in fact far more positives than negatives. Management actually provided longer-term guidance of a 25% - 30% CAGR (compound annual growth rate) through 2024.

In my view, the 2024 forecast is quite impressive as it means the company will at least double its current FY 21 revenues within 3 years, at scale, which is a strong sign of confidence by management.

Although these are very attractive growth rates, this new guidance actually represents a deceleration of revenue growth (CAGR of 25.74%) and EBITDA growth (CAGR of 29.58%) over the next four years. This seems to have disappointed many investors and below I will explain why I think that management is actually being very conservative with its guidance.

Mental Health Provision is Key for Medium Term Growth.

Slowing growth in legacy Teladoc does look worrying at first sight, especially considering that this business line includes Primary360, one of the products with the most long-term potential. Management argued that Primary360 is coming from a small base and they don’t expect it to be a meaningful contributor to revenue until 2024. This explanation makes sense as Primary360 has just been rolled out a few weeks ago, with only about 1% of Teladoc’s members having access to it.

If we do some quick calculations, we can clearly see that mental health is at the core of the bull thesis over the medium term. Mental health care will be the gateway for multi-product adoption and will surely be a very important contributor to the complete adoption of Primary360 and MyStrength going forward.

Mental health is expected to make up 50% of the consolidated business in 2024 (taking into account the high end of CAGR guidance). As mental health is improving the company’s overall margins, a higher overall weight of this segment in the consolidated company will help the company expand its profitability margins.

Given the size of the mental healthcare market as well as the inadequacy of current care and treatment regimens, I feel there is every possibility of management not only reaching by exceeding their guidance (which has traditionally been very conservative).

Valuation Upside

In my view, the return to more reasonable and sustainable growth rates was inevitable in light of the re-opening of economies across the globe. I believe the valuation already takes into account the lower growth expectations over the short term although the market is probably undervaluing the durability of growth. Even though the pandemic helped bring several years of growth forward, we are still very early into the telehealth story.

My belief is that the 25% - 30% revenue CAGR guidance by management basically only assumes very low new member growth and no new partnerships, and both of these assumptions are unlikely. It is perfectly possible to achieve management guidance by simply better monetising Teladoc’s existing member base through multi-product adoption. Overall, this means that many of the likely growth avenues available to the company are not ‘priced in’ at current levels.

Firstly, the opportunity to cross-sell across the existing member base is huge and could in itself surpass the guidance:

Source: Teladoc Investor Day Presentation

And this opportunity is still in its very early days, with only 1% of the existing member base having access to two of the most compelling offerings of the company: myStrength complete and Primary360:

Source: Teladoc Investor Day Presentation

Secondly, Teladoc has landed many members thanks to COVID and it is reasonable to assume that much of this larger remains sticky and provides greater cross-selling opportunities.

Thirdly, on top of further monetising its installed base, even if Teladoc were to achieve new member growth of just 5% through any large client wins to 2024, the company would comfortably beat the high end of its own guidance.

Lastly, Teladoc’s current share rating currently does not reflect its leadership position in a secular growth industry. Teladoc shares entered 2020 just above $80 per share. The share price shot higher amidst increased demand for virtual healthcare delivery as the pandemic hit the world. Shares reached an all-time high in the beginning of 2021 around $300. Since the end of February 2021, shares have been on a continuous downtrend and are down more than 60% since their all-time highs.

In terms of valuation metrics, Teladoc is trading at very attractive levels. TDOC is currently trading at an EV/Sales multiple of 6.31x, significantly lower than its 3Y revenue multiple mean of 11.65x. It is also lower than its 3Y pre-pandemic mean of 7.76x.

Data source: S&P Capital IQ

Given that TDOC will report significant revenue from its collaboration with CVS and Aetna from FY2022 onwards, I expect TDOC to achieve its FY2022 revenue without a hitch. The company is also expanding rapidly internationally with multiple partnerships.

If Teladoc meets the lower end of its CAGR guidance (25%) through 2024 then the company will end 2024 with $4.3 billion in revenue. Considering that telehealth will still be in its early days in 2024, we can assume that the EV/Sales ratio will remain more or less constant to current levels. For the sake of conservatism, I will assume that it contracts even further to 8x. This highly conservative scenario would value the company at $34.4 billion approximately, a 106% appreciation from the current share price level.

If on the other hand, we decide to be a bit more optimistic and take the high end of the guidance (30%) we get the following numbers. Using the same EV/Sales ratio as above, the company would trade at an approximate valuation of $38.6 billion, a 132% appreciation in market cap from current levels.

But overall, I do think that these examples show there is a margin of safety to achieve a more than acceptable investment CAGR over the medium term. If you believe management’s guidance then the company is cheap and if you look at the past record, I think it’s warranted to give this management team some credit. Teladoc’s management has a history of being conservative. If we take a look at its history as a public company, management has been able to beat its own estimates in 24 out of the 26 quarters as a public company. Quite impressive. This is even more impressive when we take a look at how management has fared against analysts’ estimates which typically tend to be higher than their own:

Source: Seeking Alpha Premium

Key Risks

There are several risks regarding the Teledoc investment thesis:

  • Investors fear that Teladoc’s growth rates cannot be sustained. This is a valid concern which is already visible in many of Teladoc’s metrics, including:

    – Revenue growth, where the growth rate declined to 81% in Q3 from 109% in Q2 2021. And while the revenue outlook for FY 2021 indicates a robust 85% growth rate (vs. 98% YoY growth in 2020), it’s probably the 2022 outlook that surprised investors where management provided a preliminary outlook of $2.6bn in FY22 revenue, implying only 28-29% growth vs. FY 2021.

    – The growth deceleration is also visible in the customer metrics as U.S. Paid Members came in at ~2% YoY growth, a deceleration from 41% growth for FY 2020, and 20% YoY growth in Q1 2021.

However, as I have highlighted above, even this decelerated growth is high by market standards and doesn’t include the potential of new partnerships, international expansion nor the vast growth opportunity of better mental healthcare provision.

  • Investors should also be mindful of the company’s loss making nature. On the surface, Teladoc’s net loss during the past nine months increased roughly 4-fold compared to the first nine months of 2020 with current 9-month net loss of $(417.8) million compared to $(91.2) million for the first 9 months of 2020. However, as outlined above, most of this is driven by SBC in relation to the Livongo acquisition which should have a declining impact moving forward.

  • Lastly, there is competition, which is trying to gain a foothold in this very attractive niche. Competitors like Amwell continue to expand their services which could become a threat to Teladoc in the fight for market share. In addition, big players from outside the industry are also expanding their telehealth capabilities, e.g. insurer Cigna through its acquisition of MDLive, or Amazon who is significantly expanding its Amazon Care subsidiary. Against this threat, it’s important to highlight again that the market is still very fragmented but only a few have managed to gain significant scale to anything even remotely close to Teladoc. And Teladoc continues to expand its service offerings, including its recently launched mental health service myStrength Complete, which integrates capabilities to deliver comprehensive virtual mental care delivery, which were shown to have the highest penetration rates at the moment (see McKinsey data above).


As we continue to move out of the pandemic into a more normalised healthcare delivery environment, there is no doubt that telehealth will remain an important component of healthcare delivery, supported by improved customer and provider perceptions, regulatory improvements, and a broadening of access to and coverage of services. Further broad-based adoption will require that providers and regulators work closely together to address some of the still imminent barriers, especially integrating virtually enabled services into the day-to-day routine of clinicians to enable hybrid care models.

I believe that Teladoc represents a solid growth company in a fast-growing sector which we can buy today at a very low valuation in a historic context. The disappointment regarding management comments at Teladoc’s Investor Day together with price charts showing Teladoc shares are still moving in line with COVID headlines, shows widespread misunderstanding amongst investors regarding the sustainability of the company’s growth rates.

There is no denying that the stock is out of favour, but I think that the long-term story is fully intact. Considering the low valuation right now, Teladoc has the potential to reward long-term patient investors who are able to focus on fundamentals. I believe that the company’s future will be driven by the inevitable adoption of virtual care delivery which will help to eliminate major healthcare resource constraints, especially for physician visits and chronic disease management.

Even assuming the disappearance of Covid, the telehealth market in the US alone is estimated to be a quarter-trillion dollar opportunity. It is important to highlight that the telehealth market is still in its infancy and subject to many barriers like accessibility, quality perception, as well as regulatory and partial reimbursement restrictions. The global telehealth market was valued at 62.5 billion USD in 2020 and forecast to grow at a CAGR of 26.5% until 2026. With the majority of that market coming from virtual physician office visits ($126 billion) and the remaining opportunity being equally distributed from virtual urgent care, near-virtual office visits, virtual home health services, as well as tech-enabled home medication administration, Teladoc seems perfectly positioned to capture a significant share of this market as it continues to build out its multitude of services. I believe Teladoc should be able to address up to 80% of the market opportunity with its services.

There is no doubt that Teladoc will likely continue to grow its business at a significant pace, albeit at slower rates than during the heights of the pandemic. In my view the return to more reasonable and sustainable growth rates was inevitable. At the same time, management’s forecast for >$4bn in revenue by 2024 means the company will at least double its current revenues within 3 years which is a strong sign of confidence. We believe that Teladoc can sustain these growth rates at least until 2026 and may be able to reach between $6.2 and $7.5 bn in revenues by 2026. At a current market cap of 18 billion, shares are at an extremely attractive valuation.

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