It was another quarter, another disappointment for Teladoc Health (TDOC -23.67%) this week. Shares of the telehealth services provider plummeted sharply at the open on Wednesday after the company posted weaker-than-expected financial results.

The report wasn’t pretty, and its guidance was also underwhelming from a top-line growth perspective. Teladoc was a market darling when it hit the market as the country’s first and largest telehealth platform nine years ago at $19 a share. It became a broken IPO on Wednesday when it opened in the midteens. The stock is down 95% from the all-time high it hit three years ago when the growth prospects for the leading provider of remote medical consultations were far kinder. Let’s take a closer look to see what went wrong.

It’s easy to dismiss Teladoc as a pandemic growth story, and shares peaked at a time when COVID-19 vaccinations had been recently approved but were still difficult to secure for most people. However, Teladoc was a speedster before local medical offices were shuttered or deemed risky as we sheltered in place. Revenue soared 89% in 2017 and 79% in 2018 before slowing to a 32% clip in 2019.

Sensing that it needed a spark to keep wooing growth investors, Teladoc used its rising share price as a way to lock in the equally disruptive health-tech specialist Livongo Health. The transaction was valued at $18.5 billion at the time. Today you can buy all of Teladoc at an enterprise value barely above $3 billion.

The erosion of Teladoc as a growth stock has been fierce. On Tuesday afternoon, it posted top-line growth that has now decelerated for 11 consecutive quarters. It’s gone from a 151% year-over-year surge in revenue during the first quarter of 2021 when its stock was peaking to less than a 4% bump now. The Livongo deal that closed in late 2020 helped juice early results, but it’s been organic deterioration most of the way down. It’s not all bad news, but it’s hard to find a good prognosis.

Someone not happy with what she's seeing on her laptop screen.

Image source: Getty Images.

The pulse is weak

Teledoc posted $660.5 million in revenue for the final three months of 2023 after market close Tuesday. The 4% increase was below market expectations as well as the $658 million to $683 million it was targeting for the quarter four months ago. Isn’t company guidance supposed to be conservative? It’s not a good look when you land nearly at the bottom of a wide range.

Reality is even more problematic. The number of people now able to receive Teladoc services keeps growing, but folks are either healthier as a whole or choosing to go back to old-school in-office consultations. The number of total visits serviced by Teladoc’s platform declined 8% in the fourth quarter and 1% for all of 2023. This is the first year that its telemedicine visits have declined. Its international business is growing faster, but at less than 15% of the revenue mix, it’s not going to be moving the needle anytime soon.

Teladoc’s revenue guidance for the new year isn’t exciting, and the same can be said for the three-year outlook it also unveiled this week. Teladoc is projecting 1%-to-5% growth in 2024, and the market just saw how it’s not always lowballing its targets. Its three-year outlook is more of the same, modeling annualized top-line gains in the low-to-medium single digits.

The news is better as we work our way down the income statement. Losses continue to narrow, and its gross margin has improved for seven straight reports. Reported losses will continue, but the telemedicine specialist expects to generate between $210 million and $240 million in free cash flow this year, up from $194 million in 2023. Adjusted earnings before interest, taxes, depreciation, and amortization are expected to reach $350 million to $390 million in 2024 and at least $425 million next year.

The stock opened on Wednesday at an enterprise value that is a reasonable 7 times next year’s adjusted EBITDA. However, even value investors will want to see usage start growing again before they feel comfortable about forward metrics. Teladoc has fallen hard over the last three years. It’s going to need more than just a medical consultation to get back up again.

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