Teladoc's Technology Would Be Useful Right Now
Considering the terribly sad news that has come out over the last 24 hours, I’ll skip my typical greeting.
Meanwhile, there are more worrying reports from China where the new coronavirus (2019-nCoV) has now surpassed 2,800 cases, with over 80 deaths. With China’s Spring Festival occurring at the same time, there is a chance the virus could spread rapidly as millions travel to spend the holidays with their family. Reports over the weekend suggest that over 5 million people left the city of Wuhan where the virus first emerged before travel restrictions were effectively put in place.
For investors, this is likely to be a turbulent few weeks. The DOW opened up down 450 points this morning, with travel stocks and oil futures both under increased pressure. Of course, any stocks with large exposure to China are also going to be hit hard. China accounts for 35% of all consumer spending, which could be severely disrupted as additional travel bans and quarantine periods are put in effect.
Disney has already closed its resorts in the area while they liaise with local health officials. Meanwhile, stocks like Trip.com (formerly Ctrip), Wynn Resorts, and Baozun will be even more directly impacted. It’s worth keeping in mind that all these companies had already been feeling the pressure of the ongoing trade war between the US and China.
No one really knows yet what the long-term impact of this crisis will be. Obviously, the current situation is being compared frequently to the SARS outbreak that occurred in 2002-2004. However, a lot has changed since then, with outbound Chinese travel far more prevalent.
Today’s Insight was not really supposed to be about Coronavirus, but it did dovetail somewhat with the topic that I was going to write about — that of Teladoc’s most recent acquisition. I’m sure that health officials in China and around the world are very much wishing that they had a robust telemedicine network available to them at this time. After all, in trying to contain the spread of a virus, having sick individuals congregating in one space is surely not helping.
Teladoc announced two weeks ago that it was acquiring InTouch Health for $600 million. At over 7-times sales it is an expensive acquisition, however, as my friend Jason Moser points out, the deal is mostly being paid within company stock — which is sitting at almost an all-time high. InTouch was also growing fast, with revenue reported to be up 35% year-over-year.
InTouch, by the way, was in a very similar business to Teladoc in terms of delivering telemedicine solutions. However, InTouch was specifically targeting hospitals and doctors' offices. Teladoc was largely focused on direct-to-consumer and organizational solutions.
So is this a good acquisition?
Well, as we know, acquisitions typically destroy shareholder value. In this case, however, the market has looked favorably on this news, with Teladoc stock seeing a big bump following the announcement.
Keep in mind, though Teladoc has had an incredible 200%-plus increase since its IPO, the telemedicine market is also growing rapidly, up an average of about 25% over the last five years.
We’ll have to wait for an see how the InTouch acquisition pans out, but with over $3.5 trillion dollars spent in the US every year on healthcare, there’s a massive market opportunity out there for Teladoc.
I’m a very happy shareholder and plan to be for many years to come.