Three months ago, Signify Research described the Q4 2022 and FY2022 financial results of Amwell and Teladoc as offering ‘grounds for guarded optimism in 2023 and beyond’.
The macroeconomic picture has, if anything, become bleaker since then, and the two telehealth vendors’ Q1 2023 year-on-year (y-o-y) results are underwhelming at best. Both remain in a revenue rut, pummelled by soaring inflation, manpower shortages and the last vestiges of a COVID hangover. Amwell reported yet another quarter of near zero y-o-y growth, while Teledoc’s y-o-y revenue growth is modest.
Despite this, the grounds for optimism referred to in early March remain, with a little more clarity on how Amwell and Teladoc might boost their revenues now emerging.
The Signify View
The latest quarterly results have a familiar ring. Amwell’s struggles continue, its Q1 2023 revenues 0.4% down on Q1 2022 at $64M. Net losses plunged, increasing 623% q-o-q to $398.50M, reflecting mainly a $330.3M one-off impairment charge. Discounted, the loss was $68.2M against revenues of $64M.
Teladoc’s revenues, while hardly cause for mass celebration, fared far better, up 11% on Q1 2022 at $629M. This was its lowest y-o-y quarterly growth rate since it went public in 2015 and the first quarter it has reported a q-o-q decline in revenues.
Total visits for Amwell numbered 1.71M in Q1 2023 (1.775M in Q1 2022), although the number of ‘in-house visits’ (i e those Amwell provides with its own doctors rather than third-party health system doctors) rose. Teledoc’s visit numbers increased 4.9% in the quarter. However, again this was the lowest y-o-y quarterly growth rate for visits since it went public.
Amwell’s almost non-existent revenue growth is nothing new, of course. More noteworthy is how the company can reignite growth within its health system and health plan businesses, where it has consistently struggled to win new customers. Trying to sell more solutions to its existing customers is therefore the logical next step.
It can do this by offering a selection of additional modules to health system customers, what it refers to as its ‘land and expand – from telehealth to ‘digital first’ strategy. These modules encompass virtual care tools across the entire patient journey. Amwell is one of just a handful of vendors offering enterprise-scale telehealth solutions across diverse care settings, from primary care to pre-admission and hospital and post-acute care, so it well positioned to execute on this strategy.
This strategy also plays into the fact that health systems increasingly look for a ‘catch-all’ solution from one vendor to service all their needs, rather than buying point telehealth solutions across different care settings. It promises to deliver incremental success over time and start to increase revenue per customer.
Aligning with VBC
Amwell is also betting big on automated care programmes. These are workflow tools that can help guide providers’ longer-term care management strategies for patients that have, for example, been discharged from hospital or who suffer from chronic conditions.
This is a ripe opportunity, and aligns closely with the value-based care (VBC) movement in the US. But it also comes with risk for Amwell. This is unfamiliar, and highly competitive, territory for the vendor. Babylon Health, Signify Health, VillageMD, some retail players and primary care management organisations like Aledade all specialise in structured care management programmes, and are also developing their own virtual care services and platforms for health providers, which is Amwell’s traditional stronghold. Amwell will need to dislodge, and there is no guarantee that it will be successful.
As with its health systems business, Amwell has also had problems growing its health plan customer base, and so here as well it can now intensify its focus on boosting revenue per existing customer, something it has already had success in doing (see figure below). It can do this by moving away from its legacy business and into new markets like behavioural health.
Amwell acquired UK mental health platform developer SilverCloud Health in 2021, and focusing on behavioural health makes sense given the strong momentum in this market in the US in particular. This is also a competitive arena, however, in which Amwell has a relatively small footprint. Further acquisitions will be necessary if it wants to make meaningful inroads in the US and internationally (a route it has yet to fully exploit).
The company is acquisitive by nature. In 2021 it spent $320M on SilverCloud as well as Conversa Health, for example, but this was at the giddy heights of the COVID boom. In 2023, against a more sombre backdrop of losses and shrinking funds, acquisition will be less palatable.
Amwell Revenues Per Customer by Customer Type
As in previous quarters, the Teladoc story also improved little in Q1 2023 q-o-q, although overall the picture is brighter than its rival. Revenues were up 11% y-o-y at $629M and, unlike Amwell (which effectively loses $2 for every $1 it makes), Teladoc reported just a narrow negative EBITDA of –$7.3M in Q1 2023. It is tantalisingly close to profitability.
And, while its US revenues fell, its international business (which accounts for a smaller chunk of the business overall) experienced rapid q-o-q growth, highlighting the benefits of Tedaloc’s geographical diversity (which Amwell lacks).
However, if anything highlights the visionary gulf that exists between Teladoc and Amwell, it is in mental and behavioural health. While Amwell is only now making moves into this buoyant market, Teladoc was acquiring BetterHelp, the digital mental health platform, back in 2015. BetterHelp now has 460,000 members, a far smaller number than Teladoc’s traditional integrated care and video consultation business, but, tellingly, it makes a lot more money from each BetterHelp member.
Beyond behavioural health, Teladoc has a solid, well established customer base, and the experience with success and mistakes along the way. Where Amwell has been more conservative and circumspect, Teladoc deftly diversified into areas like behavioural health and chronic care management long before its rival.
Grasping the Moment
Amwell has, in a way, done the easy part by deciding its strategy on increasing revenue per customer rather than chasing new customers. The hard part will be executing this in highly competitive areas, amid very challenging macroeconomic times and with its hands tied to an extent by its own financial circumstances. It has also shed hundreds of jobs in the past year.
The fact it is unable to grow its customer base leaves it vulnerable to churn. As nearly all health systems and health plans now have relationships with telehealth platform or service providers, this is not the greenfield opportunity it was three years ago. Back then, there were many potential customers who had no solution in place.
Curiously, Amwell has also recently indicated that it needs to generate $500M in revenues just to break even. Given its performance over the last four years (when annual revenues inched from $245M to $280M), with a zero-growth forecast for 2023 and with limited cash to fund its strategy, $500M seems far off. It will need to hit the metaphorical jackpot with its growth strategy, which is unlikely.
And so, while Teladoc has been slowly slotting the various parts of its jigsaw into place, the pieces of Amwell’s jigsaw remain scattered across the drawing board. Both vendors are navigating incredibly challenging operating conditions, and both must find ways to cut costs substantially in the current environment. But with solid foundations and foresight, Teladoc says it can achieve 11% revenue growth this financial year, where its rival predicts none. It will be many more quarters of disappointing revenues before Amwell turns the corner.