THE HEDGEYE EDGE
We added Teladoc (TDOC) to the long side of Investing Ideas in January and are targeting +25% upside in the next 3-6 months. We have long been skeptical of Teladoc's business model for reasons currently reflected in the exceptionally high 43% short interest.
However, our skepticism has significantly dampened on what appears to be a consensus short heading in 2018. The acquisitions of HealthiestYou and BestDoctors, as well as growth in higher margin specialty services and increasingly favorable policy tailwinds contribute to our positive short-term view.
TDOC pre-announced in-line Q4 revenue of ~$76M vs consensus of $76.3M. More importantly, TDOC hit their 4Q17 break-even target reporting positive adjusted EBITDA of $2.5 million versus consensus of $1.1 million. Core to the short thesis is that TDOC will never be profitable, and while they are still years from generating positive free cash flow, profitability trends are improving as the business scales.
2018 top-line guidance of $350 - $360 million is a bit light versus consensus of $365 million (we thought management would guide the high-end in-line with consensus). It's not enough to satisfy the bull case after a 20% move higher in the stock over the last month, but enough to satisfy our base case amid 43% short interest.
We also believe there is an element of conservatism in management’s guidance. While we still have long-term concerns, the near-term catalysts line up positively. Telemedicine offers a substantial opportunity and if the market leader Teladoc continues to transition their contracting and diversify through acquisition, then the short case may evaporate altogether.
We continue to see upside into the mid-$40s over the next 3-6 months. Below are the key thesis points:
ONE-YEAR TRAILING CHART
