With the recent release of its second quarter financial results, Teladoclosses 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 that it finalized in the fall of 2020. In the second quarter, the company took another $3 billion fee to record the value of the transaction.
As expected, Teladoc’s share price fell after the report set lower expectations for its financial outlook for 2022. Berenberg Capital Markets analyst Dev Weerasuriya cut his rating on Teladoc to “hold” from “buy,” lowering the range on the stock price target to $35 to $42. Goldman Sachs analyst Cindy Motz downgraded the stock from “buy” to “neutral,” cutting her price target to $36 from $55.
This changing economic landscape presents an opportunity for large telehealth companies to realign their spending to focus on advancing their technology to better support predictive and preventative health, Ali Parsa, CEO of rival Teladoc Babylon Healthsaid in an interview
He said Teladoc can look to 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 effectively means that its capital expenditures increased tenfold. To respond, the company is organizing its spending to ensure it uses the much more expensive capital in areas that would differentiate it from its competitors – Parsa said this is when the company is focusing on e-commerce. According to him, this is the period that really made the company.
Teladoc has the potential to make a similar move by investing in technology. To succeed, telehealth companies will now need to excel in their abilities to remotely monitor patients’ health, provide personalized care recommendations and intervene before health problems escalate and require costly treatment, according to Parsa. He said telehealth companies that fail to do so will be “commercialized in a race to the bottom.”
He also noted that Teladoc’s losses were a direct result of the company’s decision to pay an “incredible amount of money” for Livongo two years ago.
Teladoc is pursuing the Livongo deal to help usher in a new consumer-focused virtual care model by merging two companies that thrive in the telehealth delivery space, Livongo founder Glenn 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 is now the CEO of Transparentdigital health platform for self-insured employers — indicated that when the news first broke that Teladoc and Livongo will merge, so will Livongo announced its financial results for the second quarter of 2020 that morning.
“With all the media coverage of the merger, what was perhaps overshadowed was that Livongo became profitable a year ahead of schedule,” he said. “We had triple digit growth, over 1,500 of the top employers used our whole staff offering and we exceeded 1 million members. All the company’s business indicators were on top. 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 time, Tullman acknowledged that “it’s clear the momentum has not been sustained and the culture, people and market leadership that Livongo had built has been lost in many ways.”
Lee Shapiro, Livongo’s former chief financial officer and current managing partner at 7wire Ventures, believes Teladoc’s financial corrections have much more to do with the general decline in the company’s stock price and the prices of other publicly traded digital health companies than the underlying health of its business. He said he remains confident that telehealth will continue to play a key role in the delivery of care in the long term, particularly for behavioral health.
Teladoc CEO Jason Gorevich echoed a similar sentiment during the second-quarter earnings call. He said his company’s financial losses were due to “increased uncertainty in the broader economic context, particularly as it relates to trends and consumer spending and their impact on our direct-to-consumer business.”
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