What’s “The Netflix of Medicine” Being Teased by Technology & Opportunity?

Sniffing out a teaser stock from Jason Stutman

We’ll start the week out with a teaser pitch I’ve been seeing from Jason Stutman for his Technology & Opportunity newsletter. As with so many stocks that are hinted at, this one plucks at our greed-strings via comparison with a massive success story — this time it’s Netflix, as Stutman refers to his “secret” pick as the “Netflix of Medicine.”

So… hoodat? Let’s start you off with a little taste of the ad:

“The Netflix of Medicine

“One unknown tech company is primed to dominate the $379 billion digital health market.

“Here’s why it could hand you nine times your money by mid-2018….

“Physical doctor’s visits are quickly becoming a thing of the past.

“No driving, no sitting in waiting rooms, no dealing with snarky receptionists…

“No wasted time, no going out when you’re sick, no sitting next to other germ-infested patients…

“Just simple, effective, and convenient care.

“It’s a revolution known as digital health. And as you might imagine, it’s growing at an astonishing rate.”

That Netflix comparison comes from what he calls “physical disruption” — turning a physical experience into a digital one. For Netflix it was doing away with the video store (and later the DVD-by-mail experience) and providing digital video streaming… for this teased stock it’s what’s often called “telemedicine.” More from the ad…

“Until recently, doctor’s offices were a necessity.

“If you got sick, you’d have to go into the office.

“It was the same thing if you’d needed a prescription refill and an ordinary checkup.

“But that’s all changing.

“Thanks to ‘digital doctors,’ you can get instant health care at the touch of a button….

“Just like an in-person visit, the doctor takes your history and symptoms, performs an exam, and will recommend treatment.

“And it’s not just for if you have the flu or a bacterial infection, either…

“Digital doctors can provide treatment for 90% of the most common health conditions.”

OK, so yes, doctor’s visits via video chat — that’s a trend that’s been gradually developing for a long time, and which has seen a few waves of minor investor mania in the past 15 years or so. Which company is being teased here?

We don’t get a lot of clues, but there is this…

“… one small company has a grip on 75% of this entire industry.”

And this…

“The tiny tech company that I’ll tell you about today has saved patients an average of $500 per visit — a total of $493 million over a full year.

“And the company isn’t just saving its patients stacks of cash, it’s also saving them time, as well…..

“The Netflix of medicine isn’t just doing well for its customers, either. It’s also doing well for itself and its investors.

“This tiny company serves more than 20 million members with just 3,000 doctors, which keeps its operating costs incredibly low.

“And it just signed on 50,000 more doctors, opening the floodgates for tens of millions of new members.

“On top of that, its assets are worth more than twice its liabilities, even as a startup.”

And we’re told that this is the ONLY company in “this space” that has become profitable so far. Which certainly helps.

How big is this market? We get some more numbers from Stutman in the ad:

“Even though it’s relatively new, the industry has already shot from $240 million in 2013 to $2 billion today.

“But the truth is that this is just the beginning…

“Two years from now, the digital health market is predicted to be worth $86 billion:

“And by 2024, it’s set to hit $379 billion….”

We can probably all imagine what kind of risks this sort of company will face — regulation, liability, dealing with insurance companies, etc., so we won’t get too hung up on guessing what the risks are that this industry doesn’t hit $379 billion in the next six years, we’ll stick with the actual company and look at its real financials.

But to do that, of course, we first need a name — and the Thinkolator obliges, as it so often does. All those clues point straight at Teladoc (TDOC), which is, yes, pretty much the only large “pure play” telemedicine company, and one of the few, out of a wave of digital medicine startups, to have actually gone public.

So they seem to have a bit of a “first mover advantage,” if you believe their own assessments of the market — they do say they have 75% market share, over non-public competitors like Dr. Phil’s Doctor on Demand and American Well. And about 2/3 of states are apparently on board, requiring that virtual doctor’s visits be covered by insurers the same as in-person visits.

Which probably brings up the most important point: Patients are not likely to be the customers as long as our medical system is primarily controlled by private and governmental insurance programs… patients may decide what service they like, but it will be insurers who decide which services to cover, or which services to point their patients toward, and it will be insurers who pay most of the bill, most of the time. At least, outside of the “early adopter” customer group that can afford to pay their own $200 visit fee (or whatever it might be) for convenience.

I don’t know how this particular segment of the doctor-delivery industry will evolve, or whether there will be one or a few dominant providers like there are now, or if something completely different will happen… but Teladoc is pretty big right now, with a $3 billion market cap, and they are the only ones who can really capitalize on investor attention… at least, until American Well or another provider decides to go public.

That’s probably the biggest risk, that although Teladoc is likely the largest and the most visible company in telemedicine right now (at least for investors), there are easily dozens of other fairly substantial companies vying for some space in this segment, from American Well to MDLive to First Opinion to PlushCare to the Uber-inspired Pager (in-person “doctor delivery”), to technology vendors like Spruce or SnapMD who are trying to sell telemedicine services to doctors instead of to patients and insurers. It’s early days, to be sure… though, of course, when Netflix was still primarily a DVD-by-mail company there were also other streaming technologies and services trying to take the lead in that space.

So I have some sympathy for the guess that Teladoc will continue to lead, if only because there’s a huge first mover advantage in getting a large base of physicians, patients and insurers comfortable with your service.

Will that make them profitable? Maybe. They’ve just about doubled their number of members to 23 million since going public in mid-2015, and expect almost two billion visits and 8% utilization of their service in 2018, with strong revenue growth (50% growth expected in 2018) and a pretty large number of clients (300+ Fortune 1000 companies, 35+ health plans, 250% hospitals and health systems, all according to their March Investor Presentation).

And while they might not technically be profitable (their guidance is that they still think they’ll lose at least $1.36 per share in 2018), on a non-GAAP measure their Adjusted EBITDA will be positive. That, along with a strong first quarter announced a couple weeks ago, was enough to generate a nice reception for their latest capital raise, which was a convertible bond offering, and the stock has been surging this year.

Like many startups, Teladoc has to basically balance itself between maximizing profit and investing in growth, and they’re choosing to invest pretty heavily in growth, through both acquisitions and pretty heavy marketing spending… presumably because they want to protect and grow their market share as this still fairly small segment matures. So they’re not terribly likely to become super-profitable, but their margins have been gradually improving — when they first came public they were spending $1.75 for every dollar of revenue they brought, and last year that had improved to $1.45, so that’s good, and the top-line revenue growth (more than 50%) and the efficiency of their model should let them turn profitable soon if that becomes a priority.

The valuation on a price/sales basis is pretty high, roughly 10X sales (when Netflix was growing revenues at 25% five years ago, for example it was down at about 5X sales, though the comparison is not terribly apt in any other way).

And, well, that’s about all I can tell you after reviewing a few investor presentations and looking at their numbers. I’m pretty sympathetic with the notion that a lot of routine medical care will move to the virtual world, but even if that’s true I think much of the investment premise at this point will be based on your judgement about “are they far enough ahead of their competitors to continue to dominate,” and I can’t answer that without looking into the client base of those other major competitors and interviewing customers or trying out the different products from Doctors on Demand or American Well and trying to really determine whether they have any kind of sustainable advantage.

I can tell you that on an earnings basis, analysts still expect them to be losing money next year, with the average analyst predicting 96 cents as the “loss per share” number for 2019, but that also assumes a pretty rapid deceleration of revenue growth (from 50% this year to about 25% growth next year). I don’t know whether that’s fair or not, but it does leave room for the possibility that the analysts are being too conservative.

So… sound like your kind of story? Expect great things from the “Netflix of Medicine,” or do you think the valuation is too rich, or the competition too stiff? Let us know with a comment below. Thanks for reading!

P.S. There’s also a “retire early from the death of Monsanto” pitch for a second “special report” in this ad — that’s one we covered a while ago, the stock’s down about 20% from when we covered the teaser of that pick back in December.


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35 Comments on "What’s “The Netflix of Medicine” Being Teased by Technology & Opportunity?"

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Vivian Lewis
Guest
0

does anyone really want to talk to a phone and be diagnosed by a robot which may write your prescription for the pharmacy? where is bedside manner when you are sick and need to feel that someone will cure you?

Ryan
Guest
0

I have used Teleldoc several times when Im sick. Its really convenient when you know what you have and have someone on the phone write a prescription right away.

wizard1786
Irregular
14

Ya like give me something for my headache I bet.

eleanor
Irregular
37

Vivian, you have a valid point. But I also see the convenience of using teledoctor. You don’t have to wait for a few days or a few weeks for an appointment. You also don’t have to take that much time off work, fight the traffic, and drive to your doctor’s office. As for bedside manner, when you have it, it’s great but it’s not a guarantee. Today I spoke to a receptionist at my doctor’s office and she made me feel like I was bothering her.

sdlombardi
Member
7

The first medical malpractice lawsuit filed because the doctor failed to diagnose cancer, will send this stock price to the same place where you can find Davy Jones Locker. Of course when you get to be my age this will give an entirely new meaning to the annual ‘digital’ exam. Being a trial lawyer I am happy to see another growth area being cultivated, aside from criminal law.

Now all you happy Teladoc shareholders, bend over and cough.

“Nurse! Bring me my next mistake!”

D T
Guest
0

Take that back or I will sue you! lol Not a lawyer fan.

bf1802
Irregular
7

Wouldn’t it be great to cap the legal fees at 1%!

jc2300
Guest
0

Looks like we should work on tort reform before this technology goes too far….. It’s unfortunate how there’s an entire industry out there which looks forward to people making mistakes.

bf1802
Irregular
7

Yup. I have had a long standing encounter with the legal system. It isn’t law. It is BIG business. Did anyone ever notice that the only people who walk around in expensive suits are the lawyers? All of the clients were casual or jeans because they can’t afford anything else.

hunter007
Irregular
22

Times are changing…who would have thought about a cashless society two centuries ago?

kentusm
Irregular
5

Hey, I married nurse “rachet”. I’ll take the robot.

Dr G Smith
Guest
0
While I think its a great long term future option, I don’t see a shift in the near term, partially due to the liability and other legal issues due to increased rates of misdiagnosis and other practical issues. Significant restructuring of how the US health care system functions (e.g. liability) is required. Where I do see near term value in the US is in how groups like UC Davis are using it: put in the telemedicine units at rural hospitals and clinics to allow access to specialists. The key here is that there is a licensed practitioner on both sides.… Read more »
saint stephen
Irregular
83

My doctors examine me once a month. They spend more time looking at my blood test numbers than my physical condition. But there is no substitute for a physical exam.

suelitster
Irregular
3

Physical exams don’t have to be done in person. Believe me! Skype-type interaction can be very effective. You will still have to be seen on some sort of schedule, ie yearly, for a face-to-face but most things can be taken care of pleasantly and better than in person. If you just love calling an office, listening to endless menu’s, driving, waiting etc etc, go ahead, be seen in the office. Not for me! Who has time for that nonsense? Thank goodness for using technology for a good purpose!!!!!!!

bagels88
Irregular
8

I actually used Teledoc a couple of days ago. My insurance company, Emblem health, sent me a membership card several weeks ago. As you all may or may not know, Emblem is pretty big. Anyway, it was a very good experience. I will probably take a position on a dip, as I think this company will ultimately be successful.

elk82070
Irregular
49

I like the concept long term. What I don’t like is the near 100% bump since November and the near 20% bump in the last 10 days. I also don’t care for its near 80% underperformance rating and most rate as a sell. I prefer to buy the dip and not chase the ride. But I’ve been wrong so many times before. Should it dip below $40 I could find it very appealing. But for now it is definitely worth watching.

yukonjack
Guest
0
Digital doctors…just another way to push prescriptions. Other than give you drugs, what can robots do…order you up a pot of chicken soup and have it delivered hot by Amazon? I would never use it because I am trying my darnedest to never have to take any drugs, except very rarely in a critical situation. Thus far, I am 68 and not on any prescriptions. Sorry for those who are in pain and need medicine. I just feel that Big Pharma’s code of operation is better health through the use of drugs, which is a supreme failure, except for the… Read more »
iglinski
Irregular
2
Yukonjack, I am with you there. Trying my best to stay healthy and avoid putting money in Big Pharma pockets. I see it at work, everyone trying to be “healthy” through chemistry. It isn’t working, especialy now that they are inventing diseases. Everyone is looking for Star Trek medicine miracle pill. (“Doc gave me a pill and I grew a new kidney”) I have a personal rule against investing in chemistry pharmaceuticals. I like the idea of doc to doc on the spot consulting with this service. I know that is not where the big money is and there is… Read more »
Neil Campbell
Guest
0

Yes, youkonjack, pharmas can gouge, but for the kind of medicine I need to treat a seizure disorder there are much better medicines available in the last 15 years than there were 24 years ago when my condition started–all driven buy the profit motive of the pharmaceutical companies.

And if I hadn’t been able to stop the seizures all this time I would be facing permanent brain damage–really!

suelitster
Irregular
3

It won’t be a robot. Will be a human care provider just like you would see in the office. At least for the forseeable future.

Howard Edgar
Guest
0

I know a few forward-thinking, tech-savvy “concierge-style” docs who do Skype or FaceTime visits with their patients now. Not robots. Real physicians. Face-to-face in cyberspace. Teledoc sounds worth watching.

heretic001
Irregular
1

I believe the VA does tele-med

archives2001
Irregular
64

I contacted DD and asked them. They didn’t or couldn’t find out.

medicrn81
Irregular
2

Right now a lot of these services are geared towards convenient care/urgent care. I am looking forward to the time when a lot more primary care providers are a common thing through telemedicine. At that point I may transition myself into a primary care provider (currently work in ER.)

glomerulus
Irregular
32
Being an optometrist, I know a lot of people will never give up the face-to-face encounter. In the eye care sphere, online refraction technology is coming. And there are a lot of stupid optometrists who think it will never be allowed to happen, but it will (because corporations will hire an MD to sign off on all the eyeglass prescriptions), the optometry boards have no power over this, really. Then thousands of optometrists will be out of work. I have positioned my practice to concentrate on eye diseases, not eyeglasses, which is a helluva hedge against the coming paradigm shift.… Read more »
bf1802
Irregular
7

WOW! I hope my optometrist is worth more than $250/day! I developed a pucker at the fovea. I lost 40% of the vision of my good eye. Became blind as a bat when it came to reading. Thanks to my optometrist I can still work. Retina guys won’t touch it until I lose more vision.

libikz40
Irregular
20

I go to see my GP Doctor every three months. He does not guess about my health. His LAB takes my blood, I pee in the cup and the lab gives me other tests, as needed then the LAB sends the results to the doctor. The doctor then calls me and I go to his office to discuss his findings. NO GESS WORK, JUST ROUTINE TESTS. THIS SHOULD WORK WITH TELEDOC.

Tom
Guest
0

Teladoc has been a winner ever since I nvested in it earlier this year

Mike
Guest
0

I think there is huge potential here and am going to start looking into it. To start, I hate doctors. I hate going to one. I hate talking to one. Been that way all my life and that is never going to change. I hate driving to a doctors office. I hate walking into a doctors office. I hate talking to the receptionist. I hate sitting in the waiting room. And I bet there are a lot of people like me.

bf1802
Irregular
7

You harbor a lot of hate.

daf47697
Irregular
1

Hi Travis, My first comment . Always enjoy your analysis and thanks.
On another topic, what are the China stocks to follow before they come under MSCI May 31st and Aug 3st – as touted by the Stansberry Digest or similar??.

gaicecoach
Irregular
2

Anyone know of similar companies in this field? Who is Teledoc competition?

mwojnaro
Irregular
15

Anyone remeber dial up internet? This may be the beginning of receiving the annual physical or a suppliment to urgent care. Hospitals, locally, are opening up urgent care facilities. CVS has its version of on demand health care. One concept to watch for sure.

sajenmathews
Member
1

Access to telehealth services for seniors is poised to take off in coming years thanks to the newly approved federal budget that enables virtual doctor visits for Americans covered by Medicare Advantage plans.

https://www.forbes.com/sites/brucejapsen/2018/02/10/congress-boosts-medicare-coverage-for-virtual-doctor-visits/#5f150dad3be4

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