Teladoc (TDOC)

Digital medical services platform Teladoc Health (NYSE:TDOC) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 2.6% year on year to $629.4 million. The company expects next quarter’s revenue to be around $623.5 million, close to analysts’ estimates. Its GAAP loss of $0.53 per share was 57.8% below analysts’ consensus estimates.

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.

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.

Competitors offering online legal or document services include Doximity (NYSE:DOCS) and private companies Sesame Health and MDLive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Teladoc’s sales grew at a sluggish 6% compounded annual growth rate over the last three years. This fell short of our benchmark for the consumer internet sector and is a poor baseline for our analysis.

This quarter, Teladoc’s revenue fell by 2.6% year on year to $629.4 million but beat Wall Street’s estimates by 1.7%. Company management is currently guiding for a 2.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

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 7.5% annually to 102.5 million in the latest quarter. This growth rate is decent for a consumer internet business and indicates people enjoy using its offerings.

In Q1, Teladoc added 10.7 million u.s. integrated care members, leading to 11.7% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track 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 5.3% annual declines. This isn’t great, but the increase in u.s. integrated care members is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Teladoc tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace.

This quarter, Teladoc’s ARPU clocked in at $6.14. It declined 12.8% year on year, worse than the change in its u.s. integrated care members.

For online marketplaces like Teladoc, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

Teladoc has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 70.6% gross margin over the last two years. That means Teladoc only paid its providers $29.35 for every $100 in revenue.

Teladoc’s gross profit margin came in at 68.7% this quarter, down 1.2 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Teladoc grow from a combination of product virality, paid advertisement, and incentives.

It’s relatively expensive for Teladoc to acquire new users as the company has spent 46.7% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Teladoc operates in a competitive market and must continue investing to maintain an acceptable growth trajectory.

Investors frequently analyze operating income to understand a business’s core profitability. Similar to operating income, EBITDA is a common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of profit potential.

Teladoc has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer internet sector, boasting an average EBITDA margin of 12.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Teladoc’s EBITDA margin might fluctuated slightly but has generally stayed the same over the last few years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Teladoc generated an EBITDA profit margin of 9.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Teladoc’s full-year earnings are still negative, it reduced its losses and improved its EPS by 48.4% annually over the last three years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, Teladoc reported EPS at negative $0.53, down from negative $0.49 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Teladoc to improve its earnings losses. Analysts forecast its full-year EPS of negative $5.92 will advance to negative $0.90.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Teladoc has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.5% over the last two years, better than the broader consumer internet sector.

Taking a step back, we can see that Teladoc’s margin expanded by 2.2 percentage points over the last few years. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Teladoc burned through $15.67 million of cash in Q1, equivalent to a negative 2.5% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Teladoc reported $1.19 billion of cash and $1.58 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $305.7 million of EBITDA over the last 12 months, we view Teladoc’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $29.61 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We liked that Teladoc beat analysts’ revenue and EBITDA expectations this quarter. We were also glad it expanded its number of users. On the other hand, its full-year EBITDA guidance missed significantly and its EBITDA guidance for next quarter also fell short of Wall Street’s estimates. The outlook is weighing on shares. The stock traded down 4.4% to $6.85 immediately after reporting.

Updated: May 15, 2025 at 10:26 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Teladoc, you should also grasp the company’s longer-term business quality and valuation.

Teladoc isn’t a terrible business, but it isn’t one of our picks. First off, its revenue growth was uninspiring over the last three years , and analysts expect its demand to deteriorate over the next 12 months. And while its EPS growth over the last three years has been fantastic, the downside is its ARPU has declined over the last two years. On top of that, its projected EPS for the next year is lacking.

Teladoc’s EV/EBITDA ratio based on the next 12 months is 4.2x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $9.18 on the company (compared to the current share price of $7.31).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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