Mentioned in Video:

🤩 #CathieWood has accrued so much of this stock, her funds now hold over 9% of the company. Could it be the new #ARKInvest favorite? This company is the 2nd biggest holding in #ARKK, the biggest holding in #ARKG, the 5th biggest holding in #ARKW, and it's even in #ARKF. The company I'm talking about is Teladoc (#TDOC), so let's talk about why it's at bargain-basement prices because it could be one of the best stocks to buy now!

Video Transcript:

ARK Invest's favorite stock? I'll give you a hint. The ticker has four letters and it starts with a T. In this episode, I'm going to show you one of the dumbest investment clips from CNBC I've ever seen talk about ARK Invests potential vision for a market that's already growing like crazy. And then I'll give you an overview of what could be their highest conviction stock. By the way, ARK Invest has so many shares in this company, their funds hold almost 10% of the company as a whole.

If that's not the definition of conviction, then I don't know what is. If you enjoy this type of commentary and analysis, consider liking this video and subscribing to the channel with all notifications turned on. That way, you'll be the first to know when I come out with new research, regardless of how YouTube tunes its algorithm. Let's get right into it, starting with this amazing clip.

Look, there's no taking away from Cathie Wood that she had a great 2020. You know, a lot of people had a great 2020. What I think is that Cathie Wood is unfortunately, probably yesterday's news already. She had a terrible February. You had her on your show on February 17. She was talking about Teladoc got you may remember this. It was at 270 a share as you were talking to her. Now it's 170. That's three weeks ago, it's down a $100 a share. You know, I love her conviction.

I love her passion, but we're not going to be talking about Cathie Wood much more.

I played that clip at the beginning of my most recent State of the ARK, where I highlighted that Cathie Wood has been Loading up on Teladoc, ticker symbol TDOC as its price continued to fall. Teladoc's market cap has been slashed by almost half in the last 90 days. When I released that video, Teladoc's price was at around $180 per share, reflecting a $28 billion market cap. Today it's trading at 16% lower than that, due to the rotation out of growth socks in a big quarter one earnings miss as a long term investor with a well defined vision of the future, neither of these short term factors bother me in the least.

In fact, I'll get back to Teladoc's earnings miss in a bit because that's where I see the real immediate opportunity. So what warrants such a massive amount of conviction? What is Teladoc? What is Livongo? And why is this thing ARK's biggest holding after Tesla? When most people think of Teladoc, they probably think of a doctor and a patient on a Zoom call, and that's it. That's a mistake. Teladoc is a serious leader in telehealth. They're leveraging big data, artificial intelligence, and the mass adoption of mobile devices to create a distributed healthcare ecosystem.

If you're thinking about Cashapp and Venmo as bank branches in your pocket, then you should be thinking about Teladoc as a clinic in your pocket. Teladoc is the second biggest holding in ARKK, ARK Invest's flagship innovation fund. It's the biggest holding in ARKG, their fund themed around the genomic revolution and healthcare innovations. It's the fifth biggest holding in ARKW, ARKJ Invest's fund themed around the next generation of Internet technologies. It's even in ARKF, their financial technology fund because Teladoc could transform the way health risks and insurance premiums are calculated and who pays for them. At a big enough scale

what this ultimately could mean is the transformation of the way the market calculates prices and health risk. Just like new fintech companies are changing the way the market calculates and prices financial risk. Think fair credit scores and better interest rates. That's the reason I think Teladoc is in ARKF. ARK Invest could be envisioning a future where everyone has a clinic in their pocket and more ailments are prevented or diagnosed earlier. And just like these fintech companies are able to go after the unbanked population. Teladoc and Telemedicine companies can afford to go after people without primary care providers today.

Digitally native AI-driven mobile, persistent health care is a big idea. If you combine their funds, ARK Invest currently holds over 14 million shares of Teladoc, valued at almost $2.2 billion today, even at its currently low valuation, making it their second biggest position overall, only after Tesla. In fact, if you look at the changes in their top five combined positions through share accounting, Teladoc increased by a higher percentage than Tesla, Square, Roku and Shopify put together over the last 90 days. But those 14 million shares actually tell me something else.

Teladoc has 154 and a half million shares outstanding. That means ARK Invest's 14 million shares represent about 9.3% ownership in the company. That's a huge stake, and I honestly wouldn't be surprised to see that number grow to 10% or even more.

Now you've been directionally right on a number of other big stock bets, including Teladoc. This is your largest holding in the Genomics Revolution Fund you run. It's also a big holding in the innovation fund. It's about 40% this year. It's got a $40 billion market cap right now. This is Telemedicine. Is Telemedicine really going to continue to shine once COVID receeds?

Well, we had a great opportunity to buy into Teladoc when the stay at home stocks were starting to flatten out as the vaccine was on the horizon. Teladoc was one of those stocks and it then was hurt by an acquisition it made, Livongo. This is a beautiful acquisition for Teladoc. The most important variable, again, I'm going to come back to AI over and over again because we think that is going to represent $30 trillion in market cap during the next ten years. And we are just beginning.

So with Livongo, Teladoc now has one of the best artificial intelligence teams and some of the best data. That's the other thing we'll come back to. Most data, best quality data. And we think the combination of Teladoc and Livongo is going to be a powerhouse. One services more the acute setting in medicine, and that would be Teladoc itself primarily. And Livongo is more involved on the chronic side. So chronic conditions, kidney conditions, mental health and so forth. So we believe that with this data, these two companies, now that they're together, now that they put their AI teams together, are going to be able to help make the health care ecosystem better, cheaper, faster, more productive, more creative.

What we say about all kinds of innovation. They're in a beautiful position to do this.

That clip of Cathie Wood speaking about Teladoc's acquisition of Livongo is the perfect setup for this episode. First, it highlights the huge opportunity they have together to transform healthcare and associated risks with data-driven, AI-powered, telemedicine, and second, I think that acquisition is actually one of the reasons for their earnings miss. Let me cover the earnings miss first, and then we can zoom out and focus on the bigger vision. Teladoc reported its first quarter 2021 earnings results at the end of April. Quarter one revenue jumped by over 150% year over year.

Consumers enrolled in multiple chronic care programs, tripled year over year, increased adoption among millennials. The list goes on and on. Oh yeah, and they missed expected earnings by a whopping $0.69 per share coming in at a net loss of $1.31 per share, down from a net loss of just $0.40 per per share in quarter one of last year. What gives? Of that loss, $0.57 per share was due to stock based compensation, which was most likely associated with the Livongo and InTouch acquisitions. That same expense was just $0.25 a year ago.

And it makes sense that stock based compensations were part of these deals. That's not really a loss to the company, even though it looks like one to Wall Street. Another $0.30 comes from amortization of acquired intangibles. This basically is just Teladoc beginning to pay off the costs associated with the Livongo acquisition, specifically Intangible assets like patents and trademarks. That's not a real loss. That's another cost of the acquisition being reflected in the earnings per share. And finally, another $0.57 of that is non cash income tax, charged to the tune of $87 million, reflecting the recording of evaluation allowance on stock compensation benefits associated with, you guessed it, the Livongo merger.

Long story short, if you take away these three things, Teladoc's earnings loss of $1.31 per share is actually a positive earnings per share of $0.13. Said another way, that earnings miss by $0.69 per share is actually an earnings beat of $0.75, if you remove the things associated with the Livongo acquisition. Which is obviously going to net Teladoc huge returns in the long run. Even if you cut everything I just said in half, it would still be as an earnings beat of $0.03 per share, which still tells a very different story.

And that's not even getting into things like Teladoc's management issuing guidance on 2021 revenues to the tune of 195 billion dollars, an 80% increase from 2020 revenues. Looks like they agree with Cathie Wood on people sticking to convenience online options, even when things open back up. Full disclosure. I do own Teladoc stock both through my positions in ARK's funds and by holding the stock directly. I'm not a financial advisor, but in my opinion, the downward pressure on Teladoc stock price is coming from this mislabeled earnings miss and the huge rotation out of growth stocks.

I'm the kind of investor that looks to buy low and sell high, which means I'm seeing this as a solid time to double down. So let's talk about what I'm doubling down on. One of the big initiatives I want to highlight is Teladoc's Primary 360 program. This leverages Livongo strength in data analytics and artificial intelligence to sort through mountains of health data, not just to refer people to doctors, but also all the potential solutions that could come before that, monitoring and managing chronic conditions, diagnostics and treatments based on signals and symptoms, and working to prevent those conditions in the first place.

Comment below if you've tried telehealth in general or Teladoc specifically. Don't share anything too specific. I'm just curious whether you're using any digitally native healthcare services right now or if your health care is still 100% in person. Me personally, I have an Amazon Halo, which tracks things like my sleep, my activity, and changes in my BMI and tone. So basically I pay Amazon to tell me that I'm tired, lazy, overweight and moody. Hey, wait. I think AI will play an increasingly large role in proactive disease prevention and the monitoring and management of chronic conditions.

As ARK Invest often calls out, AI-driven markets are winner take most, and the winners are the ones with the most data and the highest quality data. Teladoc also benefits from network effects. Just like Facebook and Twitter benefit exponentially from more users joining their platform and interacting with each other. Teladoc benefits exponentially from gaining more patients and more providers, since that leads to even more data. More data means more personalized care, which means more user engagement, which means more data. It's the same type of flywheel effect we see with Tesla.

Speaking of comparing Teladoc to Tesla, as Teladoc's Primary 360 program matures, I think they will be able to leverage artificial intelligence and their insane amounts of health data to prevent, diagnose, monitor and coordinate treatment for more and more health care concerns, just like Tesla is using AI and their insane amounts of autonomous navigation data to address edge cases in driving, the synergies between Teladoc and Livongo extend well beyond the Primary 360 program. The two companies put out a joint presentation explaining how they will augment and enhance each other to automate workflows for healthcare providers, cross sell each other's products and services, create more personalized funnels for referrals and much more.

I'll leave a link to that presentation in the description below. It's a great read. With the help of the Livongo acquisition, Teladoc will gain more members, offer more products that will be used more often in more medical conditions and health care use cases. Since those factors all multiply, the result should be exponential growth over the next five years. And just to be clear, Teladoc has already been seeing this exponential growth over the last five years. Yes, the rate of people trying Teladoc doubled largely due to the pandemic, no doubt.

But if you look back, it's been accelerating the whole time. Teladoc's repeat visits per year show the same exponential growth even before 2020. The spikes you're seeing in Teladoc's uses for infectious diseases correspond to flu seasons, so non infectious disease cases are making higher highs and higher lows meaning more people are using Teladoc services in general instead of just when they're sick with the flu. So more members, more products, more engagement in more combinations is already a trend you can find in Teladoc. I'll leave a link to their investor presentation in the description below as well.

Hopefully, this episode helped you understand just some of the things I think Cathie Wood and ARK Invest see in Teladoc, the huge positives of their Livongo acquisition last fall and Wall Street's big oversights in their latest earnings report. If it did, let me know by investing in the like button and subscribing to the channel with all notifications turned on. That's a great way to invest in the channel that invest in you. Until next time. This is Ticker Symbol: You. My name is Alex reminding you that the best investment you can make is in you.

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Alex Divinsky

💰 Investing in our future through disruptive innovation, ☕ lover of coffee, 📺 host of Ticker Symbol: YOU on YouTube

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