Does Teladoc’s Collaboration With Amazon Make Its Stock a Buy?

Not on its own, at least not yet.

If you could ask pressing, health-related questions to your home’s smart-speaker system and have a doctor respond shortly thereafter to initiate a telehealth visit, would you be willing to pay for the privilege? That’s not exactly an idle question, because on Feb. 28 Teladoc Health ( TDOC -2.96% ) announced that its telehealth service is now accessible via voice commands on Amazon ‘s ( AMZN -1.93% ) Echo smart speakers.

The collaboration between the pair is in its infancy, details about the expected financial impacts are scarce, and it’s unclear whether the working relationship will deepen even if it’s successful. Still, it’s possible to imagine a very profitable future for Teladoc that’s in reach with Amazon’s help. Let’s analyze what this new Echo feature might mean for Teladoc stock. Image source: Getty Images. Don’t expect massive growth

Before we continue, it’s important to keep the collaboration in perspective.

Teladoc makes its money by having employers, insurers, and (a few) members of the public subscribe to its telehealth service. Then, when the employees or insurance subscribers have a health issue that they would like to address, they book a telehealth appointment through Teladoc, speak with a doctor, and (hopefully) get the help or the referral they need. While the company’s traditional focus has been primary care, it has ambitions to branch out into behavioral care as well as managing the care of patients with chronic illnesses.

Per its 2021 earnings report, Teladoc’s operations yielded more than $2 billion in revenue and provided 15.4 million virtual-care visits.​​ And Teladoc continues to grow rapidly too; last year, its annual income grew by 86%, and the number of virtual visits rose by 38%.

But offering its existing set of services hasn’t been consistently profitable yet, and it’s hard to see how enabling consumers to access its doctors from their Amazon devices at home will change that fact.

Practically everyone with a smart speaker in their home is going to have a cellphone, which is only a little bit less convenient for booking telehealth appointments, so the feature isn’t a major draw to new customers. Nor is it likely to significantly increase the number of visits by existing subscribers since many people will still be responsible for a co-pay. And it definitely won’t make it any more efficient to serve demand for telehealth, so it won’t improve the profit margin .

So there isn’t really any way for the collaboration to make a big splash for Teladoc’s stock today — but that might not be the case forever. It’s pushing things in the right direction

Regardless of the issues outlined above, the market’s mildly positive reaction to the announcement of the collaboration with Amazon indicates that investors do think that it’ll be good for Teladoc. I tend to agree, and here’s why.

Over the past year, the company grew its fourth-quarter average revenue per paid subscriber in the U.S. from $1.63 to $2.49, a 52% hike. Increasing that value is important for its future since the growth of its membership base was only 3% during 2021. Decreasing the friction that members experience when they want to have a telehealth visit will probably slightly increase the amount of money they spend on the service every year, assuming it leads to more visits.

By squeezing more income out of each member, Teladoc can continue to post revenue growth despite stagnating subscriber growth. Part of that process might also entail increasing the proportion of subscribers who use the service each year, which for 2021 was 20.1% of members. And enabling people to ask their smart speaker for a telehealth appointment just might be another tiny contribution toward that goal.

The prospect of getting Amazon’s smart speakers to nudge consumers toward booking a telehealth visit under certain conditions is also undeniably appealing, though it hasn’t been broached yet by either company. But is it a buy?

In the future, the collaboration may deepen and open the door to new opportunities within integrated care management. But Teladoc still has to prove that its basic business model can generate a profit sustainably before that growth will be meaningful.

Therefore, I don’t think that it’s a good idea for anyone to buy Teladoc stock on the basis of this one new development alone. Despite the stock’s many merits, the collaboration with Amazon isn’t exactly a watershed moment, and its short-term impact on Teladoc’s financials is unlikely to be impressive. Should you invest $1,000 in Teladoc Health, Inc. right now?

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