Company overview: the world's leading telemedicine service provider

Founded in 2002, Teladoc is the world's leading telemedicine service provider, providing on-demand medical services anytime, anywhere through video, telephone, mobile devices and the Internet. The company currently has more than 50 million paying members and business coverage in more than 50 million countries and regions. The company's global expert team is composed of more than 50000 clinicians worldwide, covering more than 450 specialties.

Teladoc provides services in the B2B2C model: Teladoc's business model is mainly to sign contracts with large enterprises or insurance companies (B2B) and pay subscription membership fees, but also provide services directly to consumers through the consumer platform in the product portfolio.

Founded in Dallas, Texas, in 2002, Teladoc was the first company in the United States to provide telemedicine services.

In April 2005, TelaDoc Medical Services (TelaDoc Medical Services), a remote telephone consultation project, was launched. According to the survey, 70% to 75% of non-emergency medical incidents can be resolved by telephone, which allows users to communicate with primary care physicians anytime, anywhere, for a consultation fee of $35 to $40.

In 2011, the company added a new model of web-based online video consultation after a successful round A financing of $31.6 million.

In February 2012, the company launched the "TeladocConnect" project and officially announced the provision of "7x24" uninterrupted phone and video services.

In January and August 2020, the company acquired Intouch Health, a health system solution provider, and Livongo, an expert in chronic disease management.

Financial situation: the income continues to grow at a high level, accounting for the majority of subscription fees.

Teladoc revenue maintained high growth. From 2017 to 2019, Teladoc's revenue was 230 million / 420 million / 550 million, an increase of 89%, 79%, 32%, and maintained rapid growth. 2020Q3, stimulated by the epidemic, generated revenue of US $289 million per quarter, up 109% from the same period last year.

In terms of business income structure, the company's core business is member subscription, which occupies an absolute advantage in the main business composition. The subscription fee accounts for about 80% of the overall revenue, the subscription fee of 2017/2018/2019/2020Q3 Company is 85%, 84%, 84%, 78%, and the total ratio of consultation fee to other products and services is 15%, 16%, 16%, 22%.

In terms of regional revenue structure, the US market is the main source of revenue. In Q3 in 2020, the company's revenue in the United States was $256 million, while revenue in other international regions totaled $33 million. Revenue in the United States accounts for more than 88% of total revenue.

The company's gross profit margin remains high. Q3 from 2017 to 2020, the company's gross profit was US $172 million / 289 million / 369 million / 180 million, an increase of 88.24%, 68.46%, 27.55%, 93.43% over the same period last year. In the past three years, the gross profit margin decreased slightly, 74%, respectively, to 74%, 69%, 67%, 64%, mainly due to changes in the company's income structure (increased proportion of consultation fees) and the acquisition of Advance Medical (with a relatively low gross profit margin).

The company's adjusted EBITDA and operating cash flow turned negative in 2018 and 2019 respectively. Of this total, the EBITDA level has increased from-$47.3 million in 2015 to $39.51 million in 2020Q3, and the adjusted EBITDA profit margin has also increased from-61% in 2015 to 14% of 2020Q3.

In terms of net profit, the company is not making a profit, but the loss is shrinking. The company's net loss for 2020Q3 in 2017 was $106.87 million / 97.08 million / 98.86 million / 35.88 million respectively.

Teladoc+Livongo: the market space is broader and the growth is expected to accelerate.

The telemedicine industry is still in its infancy and is developing rapidly. According to the company's estimates, the Teladoc+Livongo market space is expected to reach $122.2 billion.

The medical expenditure in the United States remains high, and the proportion of medical and health expenditure in GDP is much higher than that in other developed countries. According to the Medicare and Medicaid Service Center (CMS), U.S. health spending rose 4.6% in 2018 to $3.6 trillion, or $11172 per person. Health spending accounts for 17.7 per cent of GDP and is expected to reach 19.7 per cent by 2026.

In terms of the sources of medical and health expenditure, medical insurance payments accounted for 75% in 2018, and out-of-pocket expenses accounted for 10%. In terms of the direction of national health expenditure, hospital expenses accounted for 33%, doctors and clinics accounted for 20%, prescription drugs accounted for 9%, and the three items totaled 62%.

Different from other countries' commercial insurance, which is only used as a supplement to public medical insurance, the medical security system in the United States is "market-oriented", and the medical insurance system is mainly commercial medical insurance.

In the United States, government-led social health insurance focuses on protecting the elderly (Medicare) and vulnerable groups (Medicaid), while health insurance for workers is provided by commercial insurance institutions.

TDOC's commercial insurance is the core market, large insurance companies are important customers, and the penetration of social insurance such as Medicare is gradually increasing. Commercial insurance paid 34% of health care costs in 2018. In commercial insurance, the insured buys it through the employer or takes out insurance with the insurance company himself. Large commercial medical insurance companies in the United States include Aetna, UnitedHealth Group, Centene, Humana and so on.

Telemedicine can enable patients to get more timely treatment, save diagnosis and treatment costs, and increase the income of doctors.

(1) US health spending remains high, and there is a need for the health care system to reduce costs: commercial insurance covers 34% of health care costs. Employers take out commercial insurance for their employees, and employers are usually required to pay 80% of the insured amount. The specific proportion depends on the company's welfare system. Therefore, we believe that, from the point of view of insurance companies and employers, there is a need to reduce employees' medical expenses, and for employers, employees' health can also reduce time absent from work such as sick leave.

(2) the waiting time for a patient to see a doctor is long, and it takes an average of 20 days to get an appointment from a doctor.

(3) doctors can improve their work efficiency and income through telemedicine services.

The epidemic has increased the acceptance and participation of telemedicine.

In terms of consumer participation, employers provide welfare plans for telemedicine services, but the consumer utilization rate is very low, user acceptance and participation is not high. The vast majority of large employers include telemedicine in health benefit plans, and the proportion of large companies providing telemedicine services increased from 27% to 89% between 2015 and 2020.

In 2018, only 2.4% of large group insured outpatients attended at least one telemedicine visit.

After the outbreak, 76 per cent of people are now interested in using telemedicine services, compared with 11 per cent before COVID-19.

The number of claims can reflect the use of consumers. According to a survey by Fair health, the national telemedicine claims increased from 0.17% of the medical claims line in March 2019 to 7.52% in March 2020, an increase of 434.7%.

In response to the pressure to expand services and control the spread of novel coronavirus, the federal government, many state governments and commercial insurance companies are expanding telemedicine coverage and relaxing existing regulations. Therefore, it has also rapidly promoted the acceptance and participation of telemedicine in the market.

Competition pattern

Industry participants in the US telemedicine and expert medical services market also include American Well, MDLive, Doctors on Demand and other companies.

American well (AMWL.N) was founded in Delaware in 2006 and went public in September 2020 with a market capitalization of $6.58 billion as of December 7, 2020. The company sells the Amwell platform by subscription, enabling customers to introduce telemedicine services and providing pay-per-view medical services; in terms of revenue structure, 84% of the income comes from platform fees and 16% from consultation fees.

As an industry leader, Teladoc has obvious advantages in scale and strong integration ability.

Teladoc's revenue mainly comes from subscription fees and consultation fees. The demand for remote consultation surged due to the outbreak of the epidemic in 2020, and the proportion of consultation fees on the platform increased from 16% in 2019 to 18% in the third quarter.

(1) subscription access fees (SaaS-like model) subscription access fees are paid by customers for their employees, policyholders, cardholders and beneficiaries, and the company's customers include employers, health plans, insurance and financial services institutions (To B). The subscription fee is charged by signing a contract on the basis of each member's monthly (PMPM:per-member-per-month). In 2019, the company collected subscription fees of $460 million, accounting for 84% of total revenue for the year.

Under the subscription access fee model, the company provides two types of subscription access revenue contracts.

a. A fixed monthly visit fee and unlimited consultation contract for each member

b. A contract that stipulates a fixed monthly visit fee for each member and each consultation fee stipulated in the contract.

(2) consultation fee and visit fee are mainly charged for scattered customers according to the number of visits (VFO:visit fee only).

In 2019, the company collected a total of $90 million in visit fees, accounting for 16% of total revenue. Different from the industry participants such as American well and Doctor on demand who only charge a single consultation fee, Teladoc mainly adopts the mode of charging B-end enterprise customer member subscription fee to carry out its service.

The company's marketing and sales are enterprise-centric, and the marketing plan is mainly aimed at human resources, welfare and financial supervisors. We believe that this model, which focuses on service management of enterprise customers, not only ensures the regularity and stability of revenue, but also helps to lighten the weight of the company's marketing.

Further expand cooperation with large customers and expand the scale of business

• In 2018, Teladoc signed a three-year contract with CVS to provide remote services to its members through CVS's mHealth app. The video consultation fee is $59 per visit. As of the fourth quarter of 2019, CVS has expanded its telemedicine to 39 states, and we believe it is expected to continue to expand to cover 50 states in the future.

• Teladoc and Aetna began their remote telephone consultation cooperation as early as 2011. the current cooperation mode is to charge only a consultation fee (VFO), which will generate $150 for TDOC per consultation.

• Among the UNH 15 million business members who work with Teladoc, 10 million members charge consultation fee only (VFO), while another 5 million members charge monthly subscription fees.

• Teladoc partnered with BCBS FEP to provide its members with telemedicine services including general medical care, behavioral health, dermatology and nutrition counseling. The company's cooperation model with FEP is to charge only a consultation fee (VFO), with a fee of $45 per TDOC visit.

• Penetration in government health plans will continue to expand in the future. In 2019, the company announced a partnership with Medicaid in four states, and announced a partnership with Medicare in nine states for the first time, successfully saving customers $20 million in medical expenses.

Be optimistic about the further expansion of Teladoc's partnership with large customers such as insurance, employers, health plans, etc., in order to increase the opportunities for cross-selling and up-selling of more paying members and more full product lines.

The only integrated telemedicine solution platform, economies of scale can save costs

Teladoc is the only company on the market that can provide comprehensive and comprehensive telemedicine solutions. Teladoc matches doctors to provide medical services in real time according to the needs of users, which not only improves the availability of medical services, but also saves high medical costs for employers, insurance companies and consumers. And the breadth and depth of Teladoc services can bring significant economies of scale and improve the utilization rate of paid members.

Scale effect is very important in telemedicine because it increases the value and stickiness of the platform. For doctors, more consultation can cooperate with doctors to reduce waiting time, improve the efficiency of time allocation, cover more subdivided areas of medical services and provide better care.

As of 2020Q3, the number of paid members has reached more than 51 million, an increase of 47% over the same period last year, and the number of consultation has reached 2.84 million, an increase of 206% over the same period last year.

Profit forecast and valuation

The company's revenue growth is expected to be 101%, 71%, 36%, 1.114 billion / 1.905 billion / 2.582 billion in 2020-2022, with an adjusted EBITDA of 63 million / 246 million / 327 million. In terms of valuation, we choose the Pamp S market-to-sales ratio method, and select 9 companies in the medical information technology industry in the United States as comparable companies, corresponding to the average value of Pamp S in 2021 is 18 times.

AMERICAN WELL (AMWL.US), which is closest to the business model and business composition of Teladoc in the industry, is valued at 26 times Pmax S in 2021 and a relative discount at 18 times valuation of Teladoc in 2021. As a result, Teladoc was given a "buy" rating of 18 times market sales in 2021, with a target price of $240.