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.”

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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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37 Comments
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Vivian Lewis
May 14, 2018 3:59 pm

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
Member
Ryan
May 14, 2018 4:09 pm
Reply to  Vivian Lewis

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
May 20, 2018 6:30 pm
Reply to  Ryan

Ya like give me something for my headache I bet.

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eleanor
Irregular
eleanor
May 14, 2018 4:15 pm
Reply to  Vivian Lewis

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.

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kamoalii
Irregular
kamoalii
May 9, 2019 4:48 pm
Reply to  eleanor

I’ve worked in aging/hospice situations where one rarely ever sees a doctor as he just can not make all the stops, and the patient is too weak to go in, and if that is possible the signoffs are almost too much to complete to make it worthwhile. Now its pretty basic stuff with a low skilled CNA doing 90 percent of the care and making the record. So…picture this…… a CNA/LPN does the basics, highlights the problems while using a phone to communicate with the doctor. The DOC does his monthly review over the phone looking at a 48-inch screen while sitting at his desk in his office. Maybe he even has a headset for more detailed viewing. Background data passes across the bottom of the screen doing some basic analysis. Maybe even a pinprick blood test is analyzed on site and the doc sees this below.
The patient can look at a screen and communicate with the doctor, the LPN/CNA can help explain the problems. Teledoc prompts the ‘visit’ dialogue with information from previous meetings. The doctor can actually look around the care room and assess more than just the patient. He can assess the team interaction. Problems can be discussed, progress and deterioration noted and it all gets done in less time than it takes him to go down to his BMW and drive out of the garage. (Think of all the extra golf time the Doc can play! He could even run ultras!) There is an incredible demand for better Homecare. But there is absolutely no money to pay to have doctors running around doing old style patient care. The hand holder is the CNA. The primary care person is the LPN. The RN comes in once a month…..She could be there every day on the phone/screen for 15 minutes.(20 patients a day!!) (Nobody gets 15 minutes of pure RN attention a day!) This company may not have the solution but it is a conceptual step in the right direction. THINK EOL- End of Life, Convelecense and the problems of recovery and of dying. The demand to make that a bit more endurable can change more than just the lives of the person headed toward the barn. I’m going to take a serious look at these companies as people at the end of the teather….have the money they have saved for a rainy day. Suddenly they are happy with even stormy days.

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sdlombardi
Member
sdlombardi
May 14, 2018 4:26 pm
Reply to  Vivian Lewis

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!”

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D T
Member
D T
May 15, 2018 1:53 am
Reply to  sdlombardi

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

bf1802
Irregular
bf1802
May 22, 2018 8:41 am
Reply to  D T

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

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jc2300
Member
jc2300
May 20, 2018 6:58 pm
Reply to  sdlombardi

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
bf1802
May 22, 2018 8:40 am
Reply to  sdlombardi

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.

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hunter007
Irregular