After years of operating losses despite robust revenue growth, Teladoc Health Inc. (TDOC) is now on a clear path to profitability, observes David Toung, an analyst with Argus Research, a leading independent Wall Street research firm.

Teladoc provides telemedicine virtual healthcare services in the United States and internationally. Customers can speak to licensed physicians about non-emergency care, mental health, and dermatological conditions, and receive remote prescriptions for medication.

Clients sign up for yearly or monthly subscriptions, and may also pay a flat fee for an appointment. Teladoc’s consulting physicians are paid per consult. Founded in 2002, the company has grown into one of the largest virtual healthcare platforms in the United States.

The company’s 4Q21 results showed growth in membership, utilization, and per member revenue. In 2021, cash flow from operations also swung to positive $194.0 million from negative $53.5 million in 2020.

Teladoc continues to post strong operating metrics and to narrow its operating losses. While it is currently increasing spending on technology, infrastructure, and member acquisition, it expects spending growth to moderate and operating margins to expand in the second half of 2022. As a result, we now expect full-year revenue to grow faster than operating expenses.

In addition, management has projected higher adjusted EBITDA margins in the second half of 2022. Given current trends in revenue and operating expenses, we see the potential for positive EPS by 4Q22.

We believe that Teladoc’s growth opportunities extend beyond the pandemic, and note that telemedicine has become an increasingly appealing and convenient avenue for accessing medical care.

Teladoc has further enhanced this ease of access through its partnership with Amazon (AMZN) and its Alexa platform. In February, Teladoc announced a partnership with Amazon in which it will offer voice-activated virtual healthcare services on Alexa-supported Echo devices.

As part of the new service, customers can say “Alexa, I want to talk to a doctor” and be connected with a Teladoc call center. Users will then get a call back on their Echo devices from a Teladoc doctor for a virtual visit. These visits are intended to address nonemergency conditions, including colds, flu, allergies, or mild COVID-19.

Although Teladoc on Alexa will initially launch via audio, the companies say that video visits are planned. Clients who are offered Teladoc services via insurance or their employers will have co-pays. The Teladoc-Amazon collaboration announcement follows news that Amazon Care will be expanding in-person medical services in more than 20 cities this year.

TDOC has underperformed over the past 52 weeks; the stock trades at 4.1-times our revenue estimate for 2023. Its valuation has come down from stratospheric levels in the recent market selloff, though the company continues to show strong operating performance, with revenue growing faster than operating expenses. As such, we now see a clear path to profitability. We are raising our rating to "buy" with a target price of $95.

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