Cathie Wood Stock Pick Teladoc Sinks 40% After Slashing Forecast

(Bloomberg) — Teladoc Health Inc., a telemedicine company that is one of Cathie Wood’s biggest investments, lost almost half its value Thursday after slashing its forecast on cost inflation and a slowdown in sales.

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The shares tumbled 40%, the biggest single day selloff since the company went public in 2015. Teladoc, a former stay-at-home winner, extended a slump that’s wiped out nearly 90% of its value since a record high set in February 2021.

Investors had been looking for a bigger payoff as the pandemic drove a pickup in virtual doctor visits, but increased competition, including from insurers, has cut into telemedicine profits. Teladoc’s results are dragging on other stocks in the digital health arena including rival American Well Corp. and health software company Accolade Inc. Amwell fell 8.5%, while Accolade closed down 9.9% at a record low, before sinking more than 20% in postmarket trading after reporting earnings.

Wood’s ARK Investment Management LLC is Teladoc’s largest shareholder, with a 12% stake worth about $652 million, well below Wednesday’s $1.1 billion valuation, according to Bloomberg data. Teladoc, the third-largest holding in the ARK Innovation ETF, adds to the woes at Wood’s flagship fund, which hit a two-year low this week.

Wood’s funds added to their positions in Teladoc on Monday and Tuesday ahead of the telemedicine provider’s report. Wood again purchased about 610,000 Teladoc shares via four ARK exchange-traded funds on Thursday, with most of the buying by its flagship ARK Innovation ETF, according to its daily trading update.

The company is part of a group of former pandemic winners backed by Wood. Others including Zoom Video Communications Inc. have been hit by the ending of covid lockdowns and concerns around rising interest rates that have weighed on growth stocks.

Results for the Purchase, N.Y.-based Teladoc were hurt by higher advertising expenses in the mental health market, as well as an “elongated sales cycle” in chronic conditions as employers and providers of healthcare plans evaluate strategies, Chief Executive Jason Gorevic said in a statement.

Teladoc also took a $6.6 billion charge for impairment of goodwill, a non-cash charge the company excluded from its adjusted results. Most of the goodwill on Teladoc’s balance sheet followed its $12.9 billion acquisition of diabetes management company Livongo Health in 2020. The deal, which followed a run-up in Livongo’s stock price, valued the company at about 56 times revenue, according to data compiled by Bloomberg News.

While the company has “the most robust virtual health platform, it is clear that competitive intensity has increased significantly and, in our view, is unlikely to abate any time soon,” Citigroup Inc. analyst Daniel Grosslight said in a research note. He slashed his price target for the stock to $43 from $115.

With the stock’s forward-looking sales multiple now at an all-time low, it is ripe for managed care, big tech or other telemedicine companies to consider an acquisition, Grosslight said.

At least six analysts downgraded the stock after the report and Teladoc now has 19 neutral and 11 buy-equivalent ratings, though the shares still have no sell recommendations among firms tracked by Bloomberg.

(Updates with ARK’s buying in fifth paragraph)