Teladoc Health: Here’s why this Cathie Wood stock is imploding

Teladoc Health (NASDAQ: TDOC) stock price continued its downfall, making it one of the worst-performing companies in Wall Street. It crashed by over 17.30% in the pre-market session after falling by 3% on Wednesday. 

The fall from grace continues

Teladoc, the biggest telehealth company in the US, has had a remarkable fall from grace in the past few years. Its stock dropped from its all-time high of $307.40 in 2021 to just $7 today. Along the way, its market cap has fallen from over $50 billion to just $1.5 billion.

Teladoc Health has had a strong fall from grace after doing phenomenally well during the pandemic when most people turned to telehealth. 

At the time, its annual revenue soared from over $553 million in 2019 to over $1.09 billion in 2020 and over $2.03 billion in 2021. 

As the company grew, it embarked on its biggest acquisition ever. It spent over $18 billion to acquire Livongo Health, another telehealth company. The goal was to become the biggest player in the telehealth industry, which was viewed as the future of health. 

That acquisition turned out badly as the company was forced to announce a big impairment charge, which pushed its net loss to over $13 billion in 2022.

Instead, there are signs that the much-touted telehealth industry is not growing as fast as was expected as people opt for more hospital visits.

Teladoc is not the only pandemic winner that has slumped. Zoom Video has tumbled from an all-time high of $590 to just $60. Similarly, PayPal stock has plunged from $324 to $65 while Novavax has moved from $308 to $12. 

Weak earnings trend continues

Teladoc Health has continued publishing weak financial results in the past few quarters. On Wednesday, it said that its quarterly revenue dropped by 2% in the second quarter to $642 million. 

The revenue decline is a sign that the company, which counts Cathie Wood as its third biggest investor, is not seeing strong demand. 

It also continued its loss-making trajectory as the net loss soared to over $837 million in the second quarter. That was a big drop from the $220 million it lost in the four quarters of 2023. The loss was because of a big $790 million goodwill charge. 

Most importantly, the company’s important Betterhelp business is also not doing well. Betterhelp is a brand that helps people access qualified therapists in areas like mental health and marriage. 

It has about 35,000 qualified therapists and has helped over 4.8 million people. Its revenue continued falling, reaching $265 million in the second quarter. The new CEO said:

“While we achieved solid performance in the Integrated Care segment, continued headwinds in the BetterHelp segment impacted overall results. We are focused on addressing the work ahead of us with urgency to unlock greater value across the company over time.”

Teladoc Health also withdrew its comprehensive forward guidance. It withdrew the guidance for its Betterhelp and its consolidated operations. It expects that its annual revenue growth will be between -1% and +2% while its adjusted EBITDA margin will be between 14.5% and 16%. 

Need for cash raise?

A key concern among investors is that Teladoc Health may need to raise cash to fund its operations as losses rise. 

I don’t believe that the company will need to raise cash because of its balance sheet. It ended the last quarter with over $1.16 billion in cash and equivalents, down from the $1.12 billion it had in the December quarter. 

These funds will be enough to push it through in the coming years as the management works to fix the business. A likely solution would be to spin off the struggling Betterhelp division and sell it, possibly to a private equity company. 

Betterhelp could fetch at least $1 billion in valuation because it has over 400,000 paying users and made over $754 million in the last six months. 

Divesting Betterhelp would help the company focus on its integrated care business which has over 92.4 million users, a 8% increase from the same period in 2023. This division has the potential to grow in the coming years.

Teladoc Health stock price analysis

TDOC chart by TradingView

In my last article on TDOC, I wrote that it was extremely oversold and that a rebound was highly possible. That outlook was wrong as the stock’s implosion continued after its earnings. 

Turning to the weekly chart, we see that the stock has continued making a series of lower lows and lower highs. It has also remained below the 50-week and 25-week moving averages, signaling that bears are in control.

On the positive side, it has formed a falling wedge chart pattern, a popular bullish sign. Therefore, while the overall outlook for the stock is bearish, the wedge pattern means that it could bounce back in the coming weeks. Besides, it is one of the most heavily shorted companies in Wall Street with a short interest of 20%.