TDOC | Earnings Preview and Telehealth Survey Results

As the #secondwave ramps COVID cases (mainly in the Southeast) to new highs, we are not seeing nearly the same level of app activity that we did into 1Q20 when TDOC reported substantial upside to consensus.  It may be that patients have already downloaded a telehealth app and physicians have largely adapted to COVID-19, first in lockdown, and more recently as cases have surged.   Teladoc will report next Wednesday on July 29th after market close.

We expect revenue of $232M for 2Q20 revenue versus guidance range of $215M to $225M on 2.3M to 2.4M visits and $800M-$825M in revenue for the full year.  Consensus is $220.7M and $823.1M for 2Q20 and 2020, respectively. Our model is based on an estimate of quarterly ambulatory visits generated by their membership, an assumption of a percentage of members converted to active users, and how much of that volume Teladoc captures.  We are assuming sequentially higher utilization and capture rate in 2Q20.  With COVID-19 ramping across much of the US over the last several weeks, both Teladoc and Betterhelp have again begun expanding week-over-week in terms of downloads and active users, although not to levels comparable to April and May, but does point to upside for 2020 relative to their guidance.

We ran a small consumer survey in March 2020 and again in July 2020 which suggests ~30% of members have converted at least some of their care to telemedicine in recent months.  We also asked what platform they used or if they saw their own physician.  Consistent with other surveys consumers prefer to see their own physician and out of the 38% of respondents who had used telemedicine, 11% had chosen Teladoc.  The majority had seen their "regular doctor on their office system."

TDOC came into the year trading at 10.9X and 8.7X EV/Sales versus 2020 and 2021 revenue estimates and currently trade at 20X and 16.7X 2020 and 2021, respectively.   Numbers have moved higher, and we believe upside is likely over the coming quarters of 2020.  However, upside in 2021 is becoming less obvious, and our current 2021 revenue estimate of $1,170M is less than 10% ahead of the consensus estimate of $1,060M.  It does not appear InTouch has been incorporated into consensus estimates fully yet, though. 

Member Attrition:  We've modeled sequential growth in membership in 2Q20 which could be aggressive.  Unemployment is likely to hit industries with higher percentage of insured workers in the coming quarters

Physician share of visits: Providers were forced into providing services via telehealth.  In the app download data we can see platforms like Doximity, SimplePractice spike at the front end of the COVID-19 wave and we've seen telemedicine pull back as practices have reopened.  

Subscription fee pressure: How will broad based physician adoption change the Subscription model? It seems likely to put pressure on the PMPM fee.

Physician supply: Many physicians contracted with Teladoc seem to practice for Teladoc on a part time basis.