At the J.P. Morgan Healthcare Conference in January, Teladoc CEO Jason Gorevic dismissed the growing chorus of naysayers, expressing confidence in his company’s trajectory and asserting, “I think that we are probably still underappreciated with respect to our market advantage, the financial performance that we’ve demonstrated, as well as the bright outlook we have in terms of our growth potential going forward.”
Barely three months later, Teladoc announced that Gorevic, the charismatic face of the company for 15 years, was gone, leaving the telehealth pioneer scrambling to appease investors.
In an examination by STAT, analysts and officials who worked with Gorevic said the departure follows a series of missed financial projections, a precipitous decline in Teladoc’s stock price, and an uninspired vision for its future.
The timing and the apparent lack of a smooth transition plan surprised some on Wall Street and others in the industry. And yet, it seemed natural that a leader who’d overseen a catastrophic decline in market value should be out. More than one analyst repeated the identical question to STAT: “Why didn’t it happen sooner?”
Gil Luria, a Wall Street analyst with D.A. Davidson, suggested this latest turn was “the last shoe to drop” after a few difficult years for a company facing “continually lowered expectations from sky-high levels during the pandemic.”
The reversal of fortune for Teladoc was perhaps so dramatic because millions of Americans have come to rely on Teladoc to attend to their routine health care needs thanks to the unprecedented public health lockdowns during the height of the pandemic. Revenues nearly quadrupled from about $550 million in 2019 to over $2 billion in 2021. Its stock crested at nearly $300 per share as investors cheered on. In the middle of that explosive growth, in 2020, Gorevic engineered Teladoc’s biggest deal yet — an eye-popping $18.5 billion merger with chronic disease management company Livongo. The dream, he said at the time, was to make Teladoc a one-stop-shop for virtual care.
Just as quickly as the rollercoaster went up, it crashed back down as growth and profits from virtual care didn’t live up to pandemic-fueled hype. With lockdowns lifted and Covid-19 receding, Teladoc hit a ceiling. And as the same investors who were cheering Gorevic on not too long ago started asking questions about what lay ahead, Teladoc’s shares began a steep decline in early 2021. The company was forced to write off $13 billion in losses related to the Livongo acquisition. Since then, its stock has tumbled about 95% from its peak, erasing nearly $40 billion in shareholder value.
In December, fending off investor criticism, Gorevic told STAT that Teladoc was the “victim of a down market.” The down market has since rebounded, but Teladoc’s stock lost even more ground following modest growth projections in February. The company’s shares are now trading well below its initial public offering price of $19.
Teladoc published a three-year-outlook in February forecasting single-digit growth. Even those modest targets, Piper Sandler analyst Jessica Tassan said, were “not a given,” and the board may have opted for a leadership change to meet them. She also questioned the board’s decision to remove Gorevic in the midst of first-quarter earnings calculations. “What there [in the earnings] made them decide to replace the CEO?”
More clarity could come April 25, when Teladoc is expected to disclose those earnings. But the company has so far been tight-lipped about the exact reasons for the board’s decision. Gorevic also did not respond to requests for comments.
With its longtime leader gone, Teladoc is now at a crossroads. A new leader could breathe life into a company that Ark Investment’s Cathie Wood called “one of the biggest stories in health care.” Or the new CEO could continue to face the same headwinds as other virtual care companies: intense competition for health plans and employer contracts, investor pressure to ruthlessly slash costs or sell off assets, and an explosion of new telehealth entrants hawking weight loss drugs and other products directly to consumers online.
Teladoc’s journey to a household name
Teladoc was founded in 2002 as a telephone-based service, and Gorevic joined in 2009. He spent 15 years growing Teladoc into a virtual care giant, taking it public in 2015 and overseeing a host of acquisitions that helped consolidate the company’s position as a single source of wide-ranging virtual services, including primary care, diabetes management, and therapy. The company’s user base gradually grew as Teladoc won over more employers and health plans that offered the service as a convenient alternative to in-person urgent care for their members, and who paid largely on a per-member, per-month basis in addition to patients’ consultation fees.
But it took the pandemic to make Teladoc a household name. As the pandemic unfolded, employer and health plan contracts swelled, along with sign-ups for Teladoc’s direct-to-consumer online therapy company BetterHelp.
“Teladoc, at points, became quasi-synonymous with acute virtual care,” said Michael Cherny, analyst at Leerink Partners, an investment bank that advises health care companies and investors. “It wasn’t ‘are you going to do a virtual care visit,’ it was, ‘are you going to do a Teladoc?’”
Teladoc recorded about 15 million visits in 2021, compared with a total of 4.1 million in 2019 — now the company typically records that many visits a quarter.
Momentum surged early in the pandemic, as did Teladoc’s stock price. The massive merger with Livongo in 2020 stunned analysts, but Gorevic was convinced it would cement Teladoc as a single-source of “whole person health” and position the company “at the forefront of the next-generation of healthcare.”
Livongo also boasted a star-studded executive team and slate of investors: General Catalyst visionary Hemant Taneja helped launch and back the company, led by Glen Tullman, formerly CEO of health IT and medical records company Allscripts, among other digital health stalwarts.
In its November 2021 investor day presentation, Teladoc suggested that by the end of 2024, the new mega-company might earn more than $4 billion per year, saying it had “multiple levers to deliver sustainable, long-term growth.” By the middle of 2022, it became clear the lofty ambitions wouldn’t pan out as envisioned. Sales for its chronic disease management services would be slower than they, and Wall Street analysts, anticipated.
“We are continuing to see our pipeline of chronic care deals developed more slowly than we anticipated at the start of the year,” Gorevic said in a July 2022 earnings call. “We believe at least in part due to competitive noise as the market transitions from stand-alone point solutions to integrated whole-person virtual care.”
Much of Livongo’s top leadership had already left Teladoc soon after the deal closed, and the company would ultimately take a $13 billion impairment charge connected to the deal. The bungled merger became a core part of Gorevic’s legacy.
Even in the middle of the pandemic-fueled hype, some analysts raised a red flag about how much Teladoc paid for Livongo. As D.A. Davidson’s Luria pointed out to STAT, “Livongo was losing $45M a year on $220M in annual sales and Teladoc paid $18.5 billion for it in August of 2020.”
Other analysts have suggested that despite the high price tag Livongo’s chronic care business was a reasonable strategic target in Teladoc’s question to become a one-stop-shop. “Pairing the timing of the deal to the current value of the company is a challenging component of Jason’s tenure,” Leerink’s Cherny said.
Livongo may have had the biggest price tag, but it’s just one of the rash of startups and virtual health competitors Gorevic scooped up during his tenure — growing the company and its offerings primarily through acquisitions. Teladoc bought telehealth companies AmeriDoc in 2014, BetterHelp for about $4.5 million in 2015, AdvanceMedical in 2018, and InTouch Health in 2020 in a cash and stock deal valued at $600 million, among several other virtual care companies.
By February 2023, it was clear that the company’s hyper growth phase was over. After doubling revenues in each of 2020 and 2021, Teladoc reported 18% growth in 2022. Gorevic cited a challenging economic environment as a source of uncertainty going forward and said that given the company’s larger size, investors should expect the company to “balance growth and margin, with an increased focus on efficiency going forward.” Its revenue grew 8% the following year. Membership and total visits have also begun to plateau.
Even under the best circumstances, pandemic-era growth was never going to be sustainable. Analysts have noted that the market for the company’s core virtual urgent care product is saturated and Teladoc likely does not have a lot of room to add members.
“If you didn’t adopt telemedicine in 2020, what could possibly force you to be a buyer of telemedicine today?” said Barclays managing director Stephanie Davis.
Gorevic’s answer to slowing growth had been to tout the company’s ability to sell more services, like chronic care management and primary care to current customers. At an investor conference just weeks before leaving the company, Gorevic touted that 75% of the company’s bookings were of new services to existing clients. He noted that just 16% of its customers were using a chronic care offering, leaving a large opportunity.
In the end, this strategy still amounted to just single-digit growth for the foreseeable future. As investors and analysts have watched Gorevic temper financial expectations in recent quarters, they began to question whether growth would surge, or taper off — and what that would mean for profit margins, Piper Sandler’s Tassan said.
A complicated legacy
After 15 years at Teladoc, Gorevic leaves a complicated legacy: Billions in goodwill impairment charges, a chronic care business analysts say still has the potential to cement founders’ vision for whole-person care but has so far vastly underperformed on sales under his watch; and a direct-to-consumer mental health business whose membership once surged thanks in part to expensive social media ads, but is now beginning to slow.
In wrestling with these issues, a new leader faces two paths forward: Look for profitability or aim for growth.
“Do you want to make the best of the member base you have and optimize profitability, optimize margins [or] would the plan be to try to reinvigorate [growth]?” asked Leerink’s Cherny.
Analysts told STAT the company’s three-year-plan, and Gorevic himself during recent earnings calls, signal a newfound preference for profit over rapid revenue growth. “I’m not going to call this a strategy pivot as much as a strategy evolution,” Cherny said.
If the choice is expanding profits, that calls for overhauling budgets across divisions, ensuring sales teams are laser-focused on the right markets, and eschewing new products and acquisitions unless they’re a sure strategic fit, Cherny said.
If a new leader is looking to squeeze more profits out of Teladoc’s operations, the online therapy service BetterHelp offers some promise. Analysts have balked at BetterHelp’s ballooning advertising budgets in recent earnings calls. The company spent $689 million in advertising and marketing in 2023, up from $624 million the previous year. A new leader will need to weigh demand and membership churn against the cost of ads and marketing. “In the past there’s certainly been elevated competition on virtual mental health…to drive growth, you’ve got to spend,” Cherny said.
An even bigger question is whether BetterHelp fits into Teladoc’s strategy at all. It’s not, analysts told STAT, a natural complement to the rest of the company that sells primarily to employers and health plans. BetterHelp requires a different sales strategy. Despite nearly a billion dollars in revenue, BetterHelp’s growth has slowed, and investors and analysts have wondered whether Teladoc should sell it.
What to do with BetterHelp is the “$2.5 billion question,” said Davis, the Barclays analyst.
These reflect broader questions about Teladoc’s finances. While it’s cash flow positive, the company still runs a net loss.
“That they have to fix,” said Evercore ISI senior marketing director Elizabeth Anderson. She said that the loss attributed to items like stock-based compensation should shrink over time for investors to be comfortable with the stock in the long term.
And then there’s the issue of what to do with a little over $1 billion in cash on the company’s books. Gorevic, who built Teladoc on acquisitions, previously said he’d keep an eye on struggling health tech companies as acquisition targets. But a new leader could also use it to buy up some of its own stock to shore up the rock-bottom share price, or service the debt from the Livongo deal.
In the leadup to the pandemic, Gorevic frequently described Teladoc’s aspiration to be a destination for whatever medical care consumers need. Analysts tell STAT he accomplished much of that vision for integrated virtual care, but that the next leader will be charged with figuring out how to fill in the gaps — and how to reassure investors who were burned after they bought into a future Gorevic painted but one that has only half-materialized.
“I think having some missteps and guidance is not viewed very positively,” said Davis. “So you need to reestablish trust with the management team.”
Despite its slowing growth, Cherny said, Teladoc is “still the dominant market player” in the virtual care space.
“For a CEO that had been there for 15 years, that led them through a significant growth arc, a significant establishment of a member base,” he said, “I think this is a matter of a partnership that has just run its course, for a company we think is at the precipice of transition.”