What Happened:
Shares of digital medical services platform Teladoc Health (NYSE:TDOC) jumped 10.1% in the morning session after the company reported a bullish 'beat & raise' second quarter. Specifically, Teladoc beat slightly on revenue and more convincingly for adjusted EBITDA. Adding to the positives, the company raised full year guidance for revenue, adjusted EBITDA, and EPS. While next quarter's revenue guidance came in slightly below Wall Street's expectations, the market seemed focus on the full year guidance raise. Additional tailwinds to the big increase in Teladoc shares (in addition to the strong quarter itself) are sentiment and short interest. Going into earnings, market and investor sentiment were negative. As an example, Jefferies published a June 26, 2023 report calling out how "telehealth is becoming commoditized" and that "slowing industry growth overall raises questions around achievability of LT targets." Additionally, short interest in the stock was 16% going into the quarter. These investors betting against the stock could be covering their short positions today on the better-than-expected quarter, giving further fuel for the stock to rise.
What is the market telling us:
Teladoc's shares are very volatile and over the last year have had 48 moves greater than 5%. But moves this big are very rare even for Teladoc and that is indicating to us that this news had a significant impact on the market's perception of the business. The previous big move was eight days ago, when the stock gained 7.69% on the news that the company announced a new collaboration with Microsoft (NASDAQ:MSFT) to enhance its virtual care platform (the Teladoc Health Solo™ platform) with AI-powered solutions. These AI solutions include Microsoft Azure OpenAI Service, Azure Cognitive Services, and the Nuance Dragon Ambient eXperience™. So what does this mean in practical terms? The integration will automate clinical documentation during virtual medical exams, which will help ease the burden on doctors and nurses. This could potentially lead to higher-quality care and better information sharing. Teladoc also hopes to reduce the administrative burden and staff shortages that plague the healthcare industry. Big picture, moving medical records and documentation from manual, siloed processes to digital, unified processes is a holy grail in the healthcare industry but a very long and hard mountain to climb. Since the first quarter of 2023, the market has reacted favourably to news of innovation in artificial intelligence (AI), and Teladoc's AI-powered solutions should raise investors' optimism.
Teladoc is up 23.4% since the beginning of the year, but at $27.87 per share it is still trading 35.5% below its 52-week high of $43.24 from July 2022. Investors who bought $1,000 worth of Teladoc's shares 5 years ago would now be looking at an investment worth $422.76.
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