Really wanted to do a thorough post on this, but I’m slammed with stuff outside investing (what gives?!). So I’ll make this iterative and I really hope others will get involved in this thread to help flesh out the pros/cons to TDOC. I’d love to hear both!
I will likely not purchase any more shares, and would probably cap this at about a 10% position size if it grows that much due to some of the risks. That could change if the financial outlook strengthens over time.
Position Size and Purchase Price
I started about a 2.5% position in December 18 which is up about 30%, then I made another small purchase recently so it’s about a 4.5% - 5% position for me now and in total, my return is 22%. Average Buy Price is $49.19.
I believe virtual/remote health has the potential for massive growth and Teladoc appears to be a leader in the space. They have a strong network of customers and doctors. Their network of doctors and customer relationships are what I view as their moat, competitive advantage, etc. Building those networks is capital intensive which makes it hard for others to do, and once a customer is onboard with Teladoc and anywhere from say 500-200,000 of their employees begin using the platform and building relationships with doctors, it’s gotta be pretty sticky.
3Q18 High Points:
1. Third quarter revenue grows 62 percent year over year to $111.0 million
2. Total paid membership grows 18 percent year over year to 22.6 million
3. Third quarter total visits grow 110 percent year over year to 641,000
* Date shown is date quarter ended*
Quarterly YoY Rev Growth // Gross Margin
Sept. 30, 2018 61.63% // 69.21%
June 30, 2018 112.1% // 70.7%
March 31, 2018 109.0% // 70%
Dec. 31, 2017 106.3% // 71%
Sept. 30, 2017 112.0% // 76%
June 30, 2017 68.34% // 78%
March 31, 2017 59.54% // 72%
Dec. 31, 2016 65.20% // 73%
Sept. 30, 2016 62.12% // 78%
June 30, 2016 44.88% // 74%
March 31, 2016 63.08% // 70%
Dec. 31, 2015 75.13% // 71%
Sept. 30, 2015 83.15% // 78%
June 30, 2015 77.69% // 74%
March 31, 2015 75.27% // 68%
Sales and Marketing as a % of annual Revenue (we want this going lower):
Notes from 2018 Investor Day
These are my very, very rough notes from about the first 30-45 mins. I strongly encourage anyone interested to listen here: http://ir.teladoc.com/investors/default.aspx
CEO Opening Remarks
Moat - Only comprehensive virtual care delivery solution
Moat - Global footprint with significant growth opportunities
Salesforce - long term customer that has now expanded to their global services
What prevents other competitors, health plans, systems, from doing this themselves and not needing TDOC?
“The reason we have an incredibly sustainable moat” it’s not single algorithm or service – but a complex set of capabilities working together that deliver market-beating value. Incredibly time intensive, capital intensive, and time intensive to do this."
Entrenched distribution - in all channels to get to consumer (hospital, schools, employers, etc)
Seamless experience for consumer so it’s intuitive.
Visit volume outpacing membership growth - Visits + 63% CAGR Membership + 51% CAGR and widening utilization is accelerating.
2014-2018 78% CAGR
Government Program tailwinds: planning for 2020
Key player CMS - Center for Medicare & Medicaid services - taking much more active steps towards virtual care
21M Medicare Advantage
38M Medicare Fee for Service
65M Managed Medicaid
“Very strong, very very happy with where it is this year relative to last year”
New wins Exon Mobil (worked on for many years) just went live Sept 1st for general medical & behavioral health. They saw the vision across integration and full array of services. Teledoc tried to sell direct but ended up going thru Aetna channel (150k members in a single client)
Potential red flags:
1. There are certainly some use cases that will never work with a virtual/remote format. That limits overall TAM.
2. Not founder-led (I prefer founder-led biz) and average Glassdoor ratings (3.7 I think). CEO rated in the high 70% on Glass door which is much lower than most of the CEOs from the SaaS/Cloud companies we discuss here.
3. Expenses: as outline during their investor day, this is a very, very expensive network to build. If costs get out of hand, or financials don’t show signs of strengthening over the next year or so it would be worrisome.