Thunderdome: Talkspace $TALK vs. LifeMD $LFMD vs. Teladoc $TDOC
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One of the hotter stocks recently on Twitter has been Talkspace (TALK), up 56% since August 5th. It bears a striking resemblance to LifeMD (LFMD), which I had previously written about with its recent partnership with Medifast (MED). Both are telehealth solutions companies with about $150 million of 2023 revenue, and projected to reach positive adjusted EBITDA in 2024. TALK focuses on psychiatric therapy, while LFMD covers physical ailments with a recent focus on prescribing weight loss drugs to the clients of the 35,000 multi-level-marketing gig economy workers of MED. You can find my previous writeup on LFMD and MED here:
My stock has fallen, and it can’t get up: LifeMD $LFMD, Medifast $MED
I have to sometimes remind myself that inside jokes and memes from thirty years ago might fall flat to a different generation or an international audience. Allow me to introduce you to Mrs. Fletcher, the star of an iconic television commercial from the 1980s.
There are a lot of great writeups on TALK already, it would be a bit redundant for me to really dive deep into the various aspects of their competitive advantages and moats.
has made TALK his 2nd largest position, and his writeup very thorough, it took him a month to write, as opposed to myself who churns through opportunities quickly, but in a more shallow way. I am also ill-equipped to have a strong opinion on which company has the better technology platform, so I have to use their past performance as a proxy on their relative quality.TALK has a total addressable market of 145 million Americans who have access to psychiatric services through their health insurance or through government transfer payments, Medicare. This resulted in 299,000 sessions last quarter. LFMD is about to get flooded with new clients as tens of thousands of yoga instructors and physical trainers who sideline as Medifast coaches will stuff LFMD’s channels with new clients. Last quarter LFMD had 996,000 consults from 254,000 active patients.
Both have strong and entrenched competition, TALK has to compete against BetterHelp, with over 400 million sessions in their history versus TALK’s 851,000 sessions in 2023. LFMD competes against Teladoc (TDOC) with 90 million Americans who have access to TDOC from their employer versus LFMD’s 254,000 active patients. TDOC owns BetterHelp, so both TALK and LFMD are competing against the same market leading juggernaut.
TALK has been growing revenue at about a 20% annual growth rate from $76 million to $150 million from 2020 to 2023. LFMD has been growing revenue at about a 40% annual growth rate from $37 million to $152 million from 2020 to 2023. TDOC has been growing revenue at about a 25% growth rate from $1 billion to $2.6 billion from 2020 to 2023. TALK is trading at 2.5x price to sales, LFMD is trading at 1.0x price to sales, and TDOC is trading at 0.58x price to sales.
The only metric in which TALK outperforms LFMD and TDOC is recent momentum, which might just be the most important metric of all. Momentum is a powerful factor, it often outperforms value, growth, or quality. I have my bias toward value, and I can occasionally price growth well enough to find value there as well, but quality and momentum are often hard for me to justify the price.
In this instance, the high-quality market leader with access to 90 million Americans through their employers, TDOC, is the cheapest, and is still growing at a reasonable rate. The aggressive growing upstart with a hidden asset, and who’s channels are about to get stuffed whether Medifast is ultimately successful or not, LFMD, is still extremely cheap. Only the momentum winner, TALK, is getting traction and buzz on Twitter, and in the near term, is likely the stock to rise the fastest out of the three. But I just can’t bring myself to buy TALK when I can buy LFMD or TDOC.
Also, TDOC is not without positive momentum, up 33% since August 5th as well. But TDOC is still burning through cash like a badly behaved tech startup. LFMD’s stock price is actually down since August 5th, and maybe I just love broken toys, but I am tempted to catch that falling knife. A 40% growth rate company with an imminent catalyst of switching to positive EBITDA, a hidden asset, and a new partnership to accelerate growth is just too darn irresistible.
Is it possible to change, could I become the Unemployed Momentum Degen? Maybe with a few calls to a Talkspace psychiatrist. But no, I just love value too darn much, and on a relative basis, TALK is not value to me. At the moment, BetterHelp appears to be struggling and won’t have their act together to compete well in the insurance market until 2025, but with TDOC’s resources and reach, is there any doubt that they will eventually provide tough competition to TALK?
In this value Thunderdome, I choose LFMD. TDOC is the market leader, but their cash burn rate is still too aggressive, and their growth is slowing, showing some signs of struggle. TALK is already at 2.5x revenue, and while they do have important catalysts in front of them, and I am confident investors should do well in the medium term, I just can’t bring myself to deploy capital here when I could buy LFMD instead. As always, please feel free to chart your own course, all three are positioned to catch a bid if I am right about the revenge of Cathie Wood and small tech stocks start to rally.
according to chatgtp, compensation for lifemd's clinicians:
Nurse Practitioners may earn around $68 per hour, according to estimates.
Physicians and senior medical roles might see higher earnings, potentially up to $145 per hour.
as a physician [psychiatrist] and employer of therapists and nurse practitioners, i've got to tell you this is pretty poor. it raises 2 issues: employee churn and/or the quality of the employees they retain. poor quality clinicians, if that is the case. raises the possibility of malpractice actions.
in terms of compensation re physicians, for example, newly trained psychiatrists can get jobs at hospitals treating inpatients for up to ~$300k plus benefits, paid vacation, etc. newly trained specialists in internal medicine earn $180-250k outside of academic settings. newly trained family medicine docs earn $170-240k. add on the value of benefits, retirement plans, and so on.
3 other issues raised by the national telehealth model:
1. licensing- matching clinician licenses to the states in which their patients are located. without this you are practicing medicine without a license, a criminal offense.
2. related is the necessity of clinicians becoming credentialed by the various insurance carriers in each state. this can be a burdensome and time consuming process, and must be done with each insurance carrier separately. this is necessary if a patient wishes to use their health insurance to help defray the cost of treatment.
3. lifemd's avoidance of controlled drugs because of fear of regulatory issues is somewhat limiting. some patients need controlled drugs to treat their illnesses. i assume [hope?] lifemd screens for comorbid or underlying conditions prior to treating obesity. what do they do if they discover type 2 diabetes, endocrine disorders, and so on? do they evaluate and if appropriate treat, or do they refer?
of course the potential demand for weight loss drugs is immense. problems might be lack of any insurance coverage at all for the best drugs depending on the insurance plan, or tiering of copays and/or required trials on cheaper meds to get insurance coverage if in fact available. without insurance semaglutide [ozempic/wegovy] costs $1300-1400/month, and tirzepitide [mounjaro/zepbound] costs $1000-1100/month. [btw, the latter is more effective than the former.]
all of these issues may conspire to limit the growth of lifemd, as attactive as it may appear in the abstract.
Here’s why I believe $TALK was, at least when I wrote about it, a stronger choice than $LFMD:
-Valuation: TALK was trading at 2x sales, but if you subtract the net current asset value (NCAV), the true valuation was around 1x sales, similar to LFMD.
-Cash position: TALK has a $100M net cash position, which LFMD lacks. This gives TALK the flexibility to deploy capital for buybacks or to accelerate growth, especially now that it’s no longer burning cash. On the other hand, LFMD has a negative NCAV.
-Niche focus: I prefer TALK’s psychology-focused telehealth niche over broader telehealth services. I believe specialized telehealth has stronger tailwinds compared to general telehealth, which I don’t see as the future.
In my view, the valuation at the time of my purchase was roughly the same, but TALK offered significantly more cash reserves to operate and buy back stock, plus it operates in a more promising niche with better growth potential.
I liked the write up though! Congrats!