Teladoc Rises Following Activist/Takeover Rumors

Teladoc Health

Teladoc Health (NYSE:TDOC) gained 1.4%, at least partly after an analyst speculated that the telemedicine company could become an acquisition target or see activist activity if its shares plummeted. Teladoc might be a target for CVS (CVS) or Walgreens (WBA), especially because the firm was allegedly interested in acquiring One Medical (ONEM), which Amazon decided to buy for $3.9 billion last week, Gordon Haskett’s Don Bilson wrote in a note on Friday. He believes CVS or Walgreens would be interested in TDOC at $50 per share.

Bilson further stated that the Teladoc (TDOC) board is not staggered and that the nomination period begins in January. Investors should also keep an eye out in the coming weeks to see if any funds purchased TDOC shares after they plummeted in April with Q1 results, with Q2 13-F filings scheduled to be filed. Teladoc (TDOC) fell 18% on Thursday after the virtual health startup reported earnings for the second quarter of 2022, and Goldman downgraded the stock to neutral.

We received Q2 earnings from telehealth service Teladoc after the bell on Wednesday (NYSE:TDOC). The company benefited greatly from the pandemic, but growth slowed afterward, and shares have fallen considerably from their highs. Unfortunately for investors, the latest report was underwhelming, plummeting shares in the after-hours session.

Total revenues of more than $592 million in Q2 were up about 18% over the prior-year quarter, exceeding street projections by more than $5 million. However, it is important to note that expectations had been lowered slightly due to poor guidance in previous reports. Over the last six months, the average revenue estimate has dropped by around 6.7 percent, or over $40 million. Revenue from access fees increased by 20% to $518.7 million, while revenue from visit fees increased by 7% to $66.7 million.

The company’s previously stated revenue and adjusted EBITDA forecasts for the fiscal year ending December 31, 2022, remain unchanged. However, based on current market patterns, management expects earnings to be near the bottom of those ranges.

In the immediate term, guidance fell short of expectations. Teladoc forecasted Q3 revenue of $600 million to $620 million, while analysts expected $618.4 million. If market trends continue, I wouldn’t be surprised if the upper end of this year’s revenue projection is decreased in the Q3 report. What concerns us the most is the trajectory of guidance this year, as depicted in the graph below. Despite sequential sales growth, EBITDA, Adjusted EBITDA, and net loss per share expectations have worsened from quarter to quarter.

Another source of concern for me is the company’s general financial status. When capitalized software is included in CAPEX, free cash flow in the first half of the year was a negative $14.9 million, compared to a positive $8.3 million in the previous year. In addition, the corporation wrote down over $10 billion in goodwill in the first half of 2022, reducing the total asset base on the balance sheet from $17.7 billion to $8.1 billion. This could limit financial flexibility in the future, especially since goodwill and intangible assets account for 83% of the company’s total assets. The corporation had nearly $884 million in cash at the end of the second quarter. Still, it also had more than $1.53 billion in convertible debt.

The street was modestly optimistic about Teladoc shares ahead of Wednesday’s news. The average price estimate on the street was $45.98, a little more than $3 higher than the day’s close. Because of the inadequate advice, I believe we will see some target reductions. Following the report, shares lost over a quarter of their value, falling to the low $30s in Wednesday’s after-hours trading.

With news of the takeover seeming strong, the company’s stock is taking a different shape with a rapid 1.4% surge. Let’s see where the stocks will go from here.

Featured Image: Megapixl @Rafaelhenriquepress

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About the author: Adewumi is an expert financial writer and crypto enthusiast with more than 2 years' experience in writing crypto news and investment analysis. When not writing or reading about crypto and finance, Adewumi spends his time watching football and visiting museums and art galleries.