1 number every Teladoc investor should pay attention to
Investors love increased income. When sales increase rapidly, shareholders can imagine conquered industries, defeated historical competitors, and a future filled with profits once the business matures.
But not all growth is equal. Revenue can increase by acquiring new customers, selling new things to old customers, or simply increasing prices. The best companies are able to combine all three. For Teladoc Health (NYSE: TDOC), one of these growth levers seems to be slowing down and management is pointing to another as a means of continuing to increase sales. For shareholders, that number could determine how Wall Street treats stocks over the next year.
How Teladoc is growing
The company generates revenue through subscription contracts with health systems and insurers, as well as the cost of visiting certain customers. In addition, Teladoc licenses its technology and sells equipment to conduct telehealth visits in hospitals. These sources of income are not as diverse as they appear; most of the sales come from subscriptions.
|Source of income||2020||2019||2018|
Therefore, the main driver of growth in the past has been the increase in the number of members covered by subscription contracts. In addition, the price that customers pay for each member, called per member per month (PMPM) or per subscriber per month (PEPM), also contributes to growth when it increases – and this since Teladoc went public. in 2015. Together, with more members and a growing PMPM, it’s easy to see how revenues have jumped nearly 900% since 2016.
However, one of these pillars of growth can falter.
As the company gains market share, its ability to increase the number of its members decreases. While growth has been robust over the years, the pandemic may have propelled many future activities forward as organizations scrambled to ensure access to healthcare during the lockdown. The theory is supported not only by the acceleration in membership last year, but by the lukewarm growth forecast by management for 2021.
|Year||Paying members||Annual growth|
|2021 (orientation)||52 million to 54 million||0.4% to 4.2%|
|2015||12.2 million||N / A|
Luckily for Teladoc, there are more ways to increase revenue than adding members. Another way is to increase the average price a customer pays per member. Of course, these customers will want more value if they pay more. This is where the acquisition of Livongo comes in.
Per member per month
With an increasing number of services available to clients, PMPM had grown, albeit slowly, over the years. Periodically, the company signed a large client with a lot of bargaining power, resulting in a drop. Still, the long-term trend is clear. After the first quarter of the combined operation with Livongo, this very large number has skyrocketed. Management attributed more than half of the increase to more expensive services from Livongo.
In 2020, two out of three agreements covered several products. This continues a multi-year trend, and 43% of members now have access to multiple products, down from just 9% three years ago. Access not only improves member retention and engagement, but increases the price per member. The question investors are asking is whether the consolidation of new services can compensate for the slowdown in membership.
Will this be enough?
To maintain its growth, Teladoc will have to continue to expand the range of products and services it offers. Additionally, new offerings must increase engagement throughout the patient journey, creating a relationship with members rather than being seen as a mere transaction at random intervals.
The more a member engages with the suite of products through self-service tools, wellness coaching programs, primary care and specialists, the more data the company is able to collect. This data feeds into analytics that guide members through behavioral advice and offer predictions or interventions that improve outcomes and reduce costs throughout the duration of the relationship. Ultimately, this is Teladoc’s value proposition, and the more it can be proven with data, the easier it is for customers to add products, leading to a higher price per member. Combining the 2 million glucose data points per week from the Livongo platform with the 30,000 virtual visits and 100,000 patient messages per day on Teladoc will only make this cycle more powerful.
For investors, a continued increase in the percentage of customers who subscribe to more than one product and the resulting PMPM gains will be key in determining how long Teladoc’s growth can continue. For now, management believes the elements are in place to continue PMPM’s expansion and deliver the 30% to 40% sustainable growth CEO Jason Gorevic committed to earlier this year. So far, the acquisition of Livongo has been the ideal way to launch a new lever for growth.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.