Digital medical services platform Teladoc Health (NYSE:TDOC) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, but sales fell 3% year on year to $640.5 million. On top of that, next quarter’s revenue guidance ($668.5 million at the midpoint) was surprisingly good and 5.4% above what analysts were expecting. Its GAAP loss of $0.19 per share was also 31.5% above analysts’ consensus estimates.
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Teladoc (TDOC) Q3 CY2024 Highlights:
- Revenue: $640.5 million vs analyst estimates of $631.9 million (1.4% beat)
- EPS: -$0.19 vs analyst estimates of -$0.28 (31.5% beat)
- EBITDA: $83.26 million vs analyst estimates of $82.44 million (small beat)
- Revenue Guidance for Q4 CY2024 is $668.5 million at the midpoint, above analyst estimates of $634.3 million
- Gross Margin (GAAP): 71.9%, in line with the same quarter last year
- Operating Margin: -6.9%, up from -9.8% in the same quarter last year
- EBITDA Margin: 13%, in line with the same quarter last year
- Free Cash Flow Margin: 12.3%, down from 13.5% in the previous quarter
- U.S. Integrated Care Members: 93.9 million, up 3.7 million year on year
- Market Capitalization: $1.53 billion
“I am pleased with our third quarter results, which demonstrate our commitment to consistent execution, and I remain excited about our potential. I see many strengths to build upon as we advance initiatives aimed at strengthening our business and unlocking future growth opportunities,” said Chuck Divita, Chief Executive Officer of Teladoc Health.
Company Overview
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE:TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Online Marketplace
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.
Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Teladoc’s sales grew at a decent 11.6% compounded annual growth rate over the last three years. This is a useful starting point for our analysis.
This quarter, Teladoc’s revenue fell 3% year on year to $640.5 million but beat Wall Street’s estimates by 1.4%. Management is currently guiding for a 1.2% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to decline 2.3% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and shows the market thinks its products and services will face some demand challenges.
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U.S. Integrated Care Members
User Growth
As an online marketplace, Teladoc generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, Teladoc’s u.s. integrated care members, a key performance metric for the company, increased by 7.2% annually to 93.9 million in the latest quarter. This growth rate is slightly below average for a consumer internet business. If Teladoc wants to reach the next level, it must enhance the appeal of its current offerings or innovate with new products. 
In Q3, Teladoc added 3.7 million u.s. integrated care members, leading to 4.1% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Teladoc because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and Teladoc’s take rate, or "cut", on each order.
Teladoc’s ARPU fell over the last two years, averaging 1.3% annual declines. This isn’t great when combined with its weaker u.s. integrated care members performance. If Teladoc tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether user growth would be sustainable. 
This quarter, Teladoc’s ARPU clocked in at $6.82. It declined 6.8% year on year, worse than the change in its u.s. integrated care members.
Key Takeaways from Teladoc’s Q3 Results
We were impressed by Teladoc’s revenue guidance for next quarter, which blew past analysts’ expectations. We were also happy its revenue and EPS beat Wall Street’s estimates. Overall, this quarter had some key positives. The stock traded up 10.3% to $9.76 immediately following the results.
Is Teladoc an attractive investment opportunity right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
