1.) In the section “Economic Moat,” the Morningstar analyst says that while Teladoc is large, the virtual healthcare market is too fragmented to provide Teladoc any long-time competitive advantage. But if Teladoc has 54 million members and 50,000 physicians, doesn’t it have a large network? Think of this: I would be more likely to join Teladoc as a patient knowing that they have 50,000 physicians on call, and I can get help in 10 minutes. If I am a physician, I would be more likely to sign up to the Teladoc network because they have 54 million members and so I am increasing my chances of getting plenty of patients. Isn’t Teladoc’s network (of patients and physicians) its economic moat – its competitive advantage? Is Morningstar ignoring Teladoc’s competitive advantage?
2.) “Over 80% of revenues are generated by U.S. membership fees, which are revenues collected from payors and self-funded employers for member access to the company’s virtual physician network (contractual rate per member per month). This access fees vary across clients depending on the contractually negotiated effort to drive member engagement. On average, the access fee approximates $1.00 per member per month and primarily covers the onboarding of new members and direct/indirect marketing efforts to increase awareness of available services. Additionally, each virtual member visit to Teladoc’s provider base incurs a separate fee, which on average is $45 per typical primary care visit”. This quote is from the Morningstar report. See my ATTACHEDexhibit on financial metrics. While paid membership has increased, the revenue from site visits has remained the same – 16% of revenues. The membership fee per person is $1. There is not much margin here. The profits are in the site visit revenues. Is this a problem with Teladoc’s profit model?
3.) “We expect the company’s (a) analytics offering, (b) focus on low acuity (acuity means acuteness) care, and (c) ability to provide behavioral health in virtual settings (such as mental health treatment — more anonymity) will drive revenues growth and economic profits”. A focus on low acuity means Teladoc will always be a secondary player in health care – people would go to Teladoc only for minor issues and so the visit fee would be more modest. If you were to advice Jason Gorevic, would you recommend a focus on the above three? Why or why not?