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Teladoc Health Stock Down 40% On -$41.58 EPS Loss, How Bad Is This?

Tim Worstall
Tim Worstall trader
Updated 28 Apr 2022

Trade Teladoc Stock Your Capital Is At Risk

Key points:

Teladoc Health (NYSE: TDOC) stock is down 40% this morning off the back of the Q1 figures announced last night. The headline figure of a $41 per share loss – in detail, EPS of minus $41.58 – isn’t a good look for Teladoc at all. On the other hand, if we’re to be fair about this, a very large portion of that loss is a result of a non-cash write-off of goodwill. Which isn’t the thing driving the stock price dive here – goodwill write-offs were known to be arriving.

Teladoc provides remotely administered health care which is something that is obviously and clearly a growth market. The technology to be able to do so added to the ageing of the population, clearly this is something that is going to expand. The big question is whether a profit can be made out of providing it of course.

What has caused the plummet in the Teladoc stock price is that revenue expectations were missed. Revenue went up 25% YoY for the quarter, which is the sort of amount many companies would kill for. But that was still a miss of $3.23 million on $565.4 million declared. We might think that’s not much, and in fact, it isn’t. It’s certainly not enough of a miss to prompt such a stock price decline.

So, what did? The answer is something common to a lot of online companies as we’re all coming out of lockdown. We know that the internet is going to eat the world. We can even see it doing so, step by step.UK online sakes as a percentage of total retail have been going up by 1% of the market each year. That has the usual knock on effects on retail property values and so on. But that’s long been fairly predictable.

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Then came lockdown, and there was a vast leap in the use of all sorts of online services. Amazon, obviously, but Zoom, Boohoo, Deliveroo, and so on. At one point online sales had jumped by fully 10% of the entire retail market.

It’s at this point that the valuation problem for online companies starts. Sure, we know, at some point we’ll all be doing everything online. But in 5 years? Or 50? That makes the difference in the stock valuations. We’ve had that lockdown-inspired jump in adoption, we surely have. But the big question then becomes will usage slip back? Or is the step change just the new starting point for further growth?

We don’t know, don’t know until we start seeing revenue figures from each of these online companies that enjoyed those lockdown leaps in revenue. It’s also not something that is going to be equal across all sectors. Or might not be that is, perhaps some activities will stay caught on, others will return to their previous levels of popularity.

What’s hit Teladoc is that the growth rate that we assumed to be there, which would stay post lockdown, isn’t. There was a lockdown inspired leap but that growth rate just isn’t continuing.

Yes, software and the internet will eat the world, just more slowly, which is why Teladoc is worth less than we thought.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.