The Telehealth Trade Gets Crowded

The last thing anyone should do with their money now ­— invest in telehealth provider Teladoc (TDOC).

Infringing on Amazon’s (AMZN) moat is equal to a death sentence and TDOC will soon understand how punishing it can be competing with a monopolistic oligarch.

Amazon just announced that Amazon care is now available all over America.

This service offers both virtual care and in-person services.

The Amazon Care model is desperately needed in a country where pharma has gouged the average citizen.

This much-needed health solution from the ecommerce juggernaut is to address shortfalls in current offerings for healthcare and has TDOC squarely in their crosshairs.

The in-person services are rolling out in more than 20 new cities this year and that’s just not the end of it — Amazon says the expansion comes as it continues to invest in growing its clinical care team and its in-person care services.

Remember that TDOC rode the momentum of the hard lockdowns to become one of the few pandemic tech darlings of 2020.

Fast forward to post-2020, TDOCs stock price is down by more than 70% over the past 12 months, and I hope that readers didn’t buy it at the peak!

Obviously, the telehealth company's rising sales serve as a bright spot, but sadly, the company is a one-trick pony like Facebook.

The one-trick ponies of the world are now receiving a discount when they used to receive a premium on their stock price.

The synergies of multi-industry tech firms are evident as shifting resources is way easier to do than hiring from scratch in a tight labor market. 

Granted, TDOCs numbers stand up quite nicely for now, in the third quarter, its revenue grew by 81% year over year to $522 million, and investors are likely to see more big growth when it reports on Q4 in February.

In 2020, its total membership topped 73 million people, for whom it facilitated a total of 10.6 million telehealth visits throughout the year.

However, we don’t operate in a vacuum and one’s competitive advantage can be lost in a blink of an eye.

The reality is that incremental growth will never return to its early pandemic pace when millions of people were seeking ways to get medical assistance without going to doctors' offices.

Teladoc is loss-making and margins are getting worse.

When we add AMZN into the mix, margins will most likely get squeezed more and expenses balloon further which is never a great marriage.

Next, insurmountable challenges could be around the corner and TDOC might be in front store window for a bigger company to purchase.

TODCs management is planning to increase its average annual revenue per subscriber by as much as 25% by offering a wider range of services, potentially including remote monitoring of a patient's medical sensors.

But the question is how much of that proposed 25% will be eaten by AMZN with its brand name and army of talented employees?

In addition, TDOC's costs of providing service are dropping, albeit slowly, but I would argue that AMZN can scale better than anyone in corporate America.

Over the past three years, Teladoc's cost of goods sold has fallen as a percentage of its revenue, and its quarterly gross profits have risen by 320%, but profitability is still years off.

If this becomes a battle between two loss-making telehealth companies that are burning cash, AMZN is really the last company I would want to try my luck out against.

This year will be the year where TDOC either sinks or swims and if it sinks, we will all know why.

Avoid TDOC for now.