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Bullseye Brief: On Target with Teledoc
12/04/2020 5:00 am EST
The company originally launched in 2002 as a videoconferencing platform intended to link patients in rural Texas with skilled doctors in Dallas; it came of age during Covid, leapfrogging to the forefront of public consciousness as social distancing precluded office visits.
The stock’s subsequent and meteoric rise has facilitated two transformative acquisitions in recent months: $600M for patient data management platform In-Touch, and $14.3 billion for chronic-care provider Livongo (another successful Bullseye pick).
The company provides urgent, routine and chronic care to nearly 70 million patients in 130 countries. Its partnership with walk-in clinics at CVS Health (CVS) further extends the company’s ability to reach patients.
Large enterprise customers are the backbone of Teladoc’s core telemedicine business. The company has contracted with 40% of the Fortune 500 to provide services for employees.
Teledoc has been particularly adept at showing insurers how it can ultimately cut unnecessary expenses and reduce costs overall. This is why 35 health plans and 290 hospital systems have migrated to Teladoc’s platform, providing full recognition and reimbursement of services.
The acquisition of Livongo catapults Teledoc into the burgeoning business for chronic care, where diabetes and hypertension alone constitute a $45 billion addressable market.
Livongo’s $85 per month subscription saves insurers an average of $2,000 annually by reducing unanticipated hospitalizations, and provides significant earnings visibility for Teladoc. It’s why Livongo’s revenues are doubling, and the initial diabetes platform now covers other indications like hypertension and obesity.
In-Touch Health — the firm's second acquisition — provides a comprehensive software platform to help doctors provide seamless virtual care. All medical records are stored electronically, providing instant access and analysis across patient groups.
It’s an obvious way to help doctors leverage the tele-health platform, with added interoperability to capture new patients from a website, respond to emergency consultations or compare patient statistics to meta data on millions of stored cases.
I think this is where the real benefit lies — using AI predictively to manage care before a patient’s condition deteriorates, or recommending preventative actions to avoid sickness in the first place.
Revenues will growth 45% this year and average 30% through 2023, based on recent company guidance. If we take this at face value, TDOC currently trades at 10 times 2023 sales — which is less than where other game-changing companies traded during their early days.
Specifically, they averaged 16 times sales, a 60% premium to Teledoc’s current valuation. That would imply a target for Teledoc of $280. I think this multiple is justified based on Teladoc’s unique and dominate position, its 30% sales growth and similar valuations for other transformational companies.
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