Teladoc Stock - Misleading Numbers

Teladoc is a prime example of why you should be careful when looking at the financials of a company. While numbers don't lie, the way they are shown can be misleading. In the case of Teladoc, the numbers are misleading both in a positive way and a negative way.

Teladoc TDOC Stock Analysis

If we look at the guidance made by Teladoc in the current financial year, we will see a huge change in guidance made on the Net Loss per Share from the fourth quarter of 2021 to the first quarter of 2022. The company predicted a net loss per share of about $0.66 in 2Q22. They were wrong about this prediction too.


Teladoc TDOC Stock Analysis

They lost $19.22 per share. Why is Teladoc losing so much money, and why are they so wrong with their guidance?


The culprit is GAAP (Generally Accepted Accounting Principles). According to US GAAP, a company has to report impairment of goodwill as a loss. Goodwill itself is added to a company's balance sheet when they acquire another company for a premium of its book value. The reason goodwill is added is to make the numbers look more pleasing. if a company bought another one with a book value of $2 billion for $5 billion, one has to account for the $3 billion premium. Therefore, the $2 billion is added as normal assets and liabilities while the $3 billion as goodwill. But then, if the stock price of the acquirer falls, the goodwill is impaired and recorded as a loss.


Teladoc acquired Livongo in 2020, and its goodwill skyrocketed. Now that the stock price is going down, GAAP says that this goodwill has to be impaired, resulting in a loss.


Teladoc TDOC Stock Analysis

Since goodwill is not a real tangible asset, impairment of goodwill because of market prices is not a real loss.


That's why it is preferable to look at free cash flow.


Teladoc TDOC Stock Analysis

The company had FCF of over $100 million in the last twelve months. While it is trading at over X50 FCF, maybe if these FCF can grow with revenues, it can be a good investment. However, we need to be careful and look at the owner's earnings. FCF is more accurate than net income but it has its limitations while owner's earnings actually show how much of the earnings are going to the shareholders.


Teladoc TDOC Stock Analysis

FCF is calculated by subtracting capital expenditures from the operating cash flow. Owner's earnings, on the other hand, cannot include the stock-based compensation. Stock-based compensations do not take cash away from the business, but they do dilute the shares and don't go to shareholders.

Teladoc TDOC Stock Analysis

While the market cap increased by over 300% since the company went public, the stock price increased by only 7%. Most of the value did not go to the shareholders, that is, the owners.


Full analysis of Teladoc: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/42634794

89 views0 comments

Recent Posts

See All