With the recent disclosure of its Q2 financial results, Teladoc’s losses have swelled to nearly $10 billion in the first half of 2022.
The telehealth giant took an impairment charge of $6.6 billion in the first quarter to write down the value of its $18.5 billion Livongo acquisition, which it finalized in the fall of 2020. In the second quarter, the company took another $3 billion charge to write down the deal’s value.
As expected, Teladoc saw its share price fall after the report set lower expectations for its 2022 financial outlook. Berenberg Capital Markets analyst Dev Weerasuriya downgraded his rating of Teladoc to “hold” from “buy,” lowering the target share price range to $35 to $42. Goldman Sachs analyst Cindy Motz downgraded the stock from “buy” to “neutral,”decreasing the price target from $55 to $36.
This changing economic landscape presents an opportunity for large telehealth companies to rearrange their expenditures to focus on sharpening their technology to better support predictive and preventive health, Ali Parsa, CEO of Teladoc competitor Babylon Health, said in an interview
He said Teladoc can look at what Amazon did 20 years ago as an example of how to navigate an unforgiving economic environment. Around 2001, Amazon lost about 90% of its market capitalization, which basically meant its capital costs grew by tenfold. To respond, the company organized its expenditures to ensure it was using the much more expensive capital on areas that would differentiate the company from its competitors — Parsa said this is when the company locked in its focus on ecommerce. In his view, it was the period that really made the company.
Teladoc has the potential to pull a similar move by investing in technology. To succeed, telehealth companies will now have to differentiate themselves by their abilities to remotely track patients’ health, provide personalized care recommendations and intervene before health issues escalate to require costly acute treatment, according to Parsa. He said telehealth companies that fail to do this will be “commoditized in a race to the bottom.”
He also noted that Teladoc’s losses are a direct result of the company’s decision to pay an “unbelievable amount of money” for Livongo two years ago.
Teladoc pursued the Livongo deal to help usher in a new, consumer-focused virtual care model by merging two companies that were thriving in the telehealth delivery space, Livongo founder Glen Tullman said in a statement sent to MedCity News. He said the idea seemed sound at the time, but “like anything in life — sports, business etc. — it all comes down to execution.”
Tullman — who now serves as the CEO of Transparent, a digital health platform for self-insured employers — pointed out that when the news first broke that Teladoc and Livongo would merge, Livongo also announced its financial results for the second quarter of 2020 that same morning.
“With all the media coverage of the merger, what may have been overshadowed was that Livongo had turned profitable a year ahead of schedule,” he said. “We had triple digit growth, over 1,500 of the leading employers using our whole person offering, and surpassed 1 million members. All business metrics of the company were peaking. And, I would say, Livongo’s brand was the strongest in the digital health industry.”
While the massive valuation made sense to him at the moment, Tullman admitted “it’s clear that momentum was not maintained, and the culture, people and market lead Livongo had built was lost in many respects.”
Lee Shapiro, former chief financial officer at Livongo and current managing partner at 7wire Ventures, thinks that Teladoc’s financial adjustments have much more to do with the overall decline in the company’s share price and the prices of other publicly traded digital health companies than the underlying health of its business. He said he still feels confident that telehealth will continue to play a pivotal role in care delivery in the long term, especially for behavioral health.
Teladoc CEO Jason Gorevic expressed a similar sentiment during the Q2 earnings call. He said his company’s financial losses were “due to the increased uncertainty in the broader economic backdrop, particularly as it relates to trends and consumer spending and its impact on our direct-to-consumer business.”
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