2023-10-02 16:30:49 ET
Summary
- Teladoc Health, Inc. is facing significant competition from Amazon in the telehealth space. Amazon is broadening its reach as it seeks new growth impetus in healthcare.
- Amazon's financial resources and consumer moat make it a significant threat to Teladoc's competitive position.
- Unfortunately, Teladoc Health's "C+" growth and valuation grades don't suggest a compelling buying opportunity. Its growth story was well and truly broken but could worsen from here.
- Buyers recently gave up the critical $21.5 support zone, as they likely anticipated more execution risks in Teladoc's competitive position.
- Notwithstanding my previous speculative thesis, I no longer hold a bullish view on Teladoc's ability to turn around at the current levels.
One of the toughest jobs of a growth investor is to separate the "real" leaders from the "pretenders" so that we don't pick the wrong stock to anchor our portfolio.
Astute healthcare investors focusing on sustainable moat when picking their spots have likely avoided adding Teladoc Health, Inc. ( TDOC ) stock to anchor their portfolio. Teladoc Health is seen by analysts as a leader in the telehealth segment. However, I'm unsure whether its fundamentals are robust enough to sustain a competitive edge against the healthcare leaders or rivals from another space: e-commerce and retail.
Amazon ( AMZN ) has been a real thorn in TDOC's fortunes, with investors often reacting negatively to negative headlines suggesting Amazon is ramping up pressure in healthcare. Given Amazon's financial clout and consumer moat, it's not tough to envisage that the e-commerce and cloud computing leader possesses the wherewithal and resources to dominate the fragmented telehealth space if it wants to.
Teladoc highlighted at an early August conference that it doesn't see Amazon as a "direct competitor" while acknowledging its "significant resources." As such, it views Amazon Clinic's latest foray with third-party healthcare providers as a strategy to "support Amazon Pharmacy." Despite that, Teladoc declined to participate in the program, which saw Amazon expanding its telehealth marketplace to cover all 50 U.S. States and the District of Columbia.
Notwithstanding Teladoc's optimism, I believe Amazon is increasingly viewed as a significant competitive threat by the market, impacting Teladoc's competitive position. Amazon has effectively utilized its e-commerce marketplace expertise to try and commoditize Teladoc's offerings, making it more challenging for Teladoc to take on lesser competitors before the marketplace integration.
As such, I believe it's justified for the market to reflect higher execution risks on Teladoc. Amazon has broadened its ability to be the platform leader as it looks to consolidate the telehealth space into its platform without the need to engage in M&As. Little wonder Teladoc declined to join, as it could have diluted its ability to differentiate its offerings, resulting in unforeseen price battles that could delay its profitability trajectory.
Amazon was also reportedly considering further integrating its healthcare and grocery offerings by offering standalone subscriptions. The e-commerce behemoth could incorporate "One Medical's primary care service with the Amazon Prime membership program."
As such, I believe Amazon's increasing threat in the healthcare space isn't expected to be a one-off. Teladoc is facing a significant battle with the e-commerce leader looking for higher growth opportunities. Built on its wide-moat prime membership flywheel, Amazon could strike harder at Teladoc's ability to gain momentum in the consumer space, as growth has slowed in the corporate space, given the uncertain macroeconomic conditions.
TDOC Quant Grades (Seeking Alpha)
Moreover, TDOC isn't priced at a discount relative to its sector peers, as Seeking Alpha assigned TDOC a "C+" valuation grade. In addition, its "C+" growth grade suggests TDOC shouldn't be viewed as a high-growth opportunity within the health tech space, corroborating my assessment that it's facing structural growth impediments.
While management improved its revenue guidance at its second-quarter earnings release , buying momentum has not improved, as seen by TDOC's "C-" momentum grade. In other words, with TDOC not priced for growth nor experiencing a valuation dislocation, I assessed that there isn't a compelling argument to buy TDOC now.
Unfortunately, TDOC buyers gave up the $21 support zone, a level buyers have held since late 2022. While it's possible for TDOC buyers to form a bear trap (false downside breakdown), I no longer hold a bullish view on TDOC, notwithstanding my previous Speculative Buy thesis.
As such, the recent downward move could open up a downswing toward the $13.8 level, as Teladoc Health, Inc. stock is not cheap, suggesting holders should brace for more pain.
Rating: Downgraded to Hold.
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Teladoc: Broken Growth Story Deteriorates Further (Rating Downgrade)