Speculative growth stocks have taken another big hit lately, with ARKK down 4% yesterday, and the high trading multiple future tech businesses have been underperforming over the last 1-2 months, however almost almost all of this move is driven by market or geopolitical dynamics.
Remember, a investor must own most of ones positions at a valuation where they believe the long-term upside will be attractive if the companies perform as they expect them to. That means waiting and allowing for the companies to actually perform over many quarters, this requires time and the stomach for market chop.
My personal strategy and advise would be if there has been minimal company-specific news to shake you out of positions they you must stand strong and trust your analysis will prove correct over time, however the market may start to present more attractive opportunities. Try to maintain discipline, but we’ll considering further liquidating non-core positions to buy higher conviction stock at lower prices.
Markets & Macro Daily
Markets were mainly down after Thursday close yesterday, with the S&P 500 (-0.33%) and Nasdaq (-0.70%).
- We also received fresh data on the pace of recovery of the US labor market and commentary from Jerome Powell.
10-Year US Treasury Yields were also back down to 1.327%.
European markets also closed down, with the FTSE 100 (-1.12%) and Stoxx 600 (-0.95%).
Asian markets were mixed, with the Nikkei 225 (-1.15%) down, but Hang Seng (+0.75%), and Shanghai (+1.02%) up.
Economic News
WSJ - The U.S. economy’s recovery further strengthened going into the summer as consumers spent more on tourism, travel and other services, according to the Federal Reserve
The Fed released a Beige Book report on Wednesday. The report collects business anecdotes from around the US.
- Business reported prices increased at an above-average pace as the U.S. economy strengthens into the summer.
- Supply-chain disruptions became more widespread for both labor and materials.
- Consumers spend more on tourism, travel, and other services that were restricted earlier in the pandemic.
- Businesses said they were experiencing a widespread worker shortage, coupled with workers quitting or leaving jobs at an above-average pace.
Fed Chairman Powell said they wouldn’t hesitate to raise rates to keep inflation under control but emphasized that he still expects US price pressures to ease later this year.
WSJ - China’s economy grew 7.9% in the second quarter from a year earlier, slowing sharply but showing resilience in its pandemic recovery
WSJ - The average price world-wide to ship a 40-foot container has more than quadrupled from a year ago, to $8,399 as of July 1, according to a global pricing index.
Crypto Markets
The crypto markets are slightly down, with bitcoin at $31,800 and Ether at $1,911.
Business News
WSJ - Alibaba and Tencent are considering opening their services to one another, as Beijing’s tech crackdown makes it harder for the two online giants to maintain their virtual barriers
This would be a big shift for China’s consumers. The current restrictions mean, for example, that customers can’t use Tencent’s payment system to buy goods on an Alibaba platform.
This could make life more convenient for consumers, but will also mean the companies will have more insight into each other’s businesses.
TC - Facebook will lure creators with $1 billion in payments
- The company will pay creators through a series of bonus initiatives across Facebook and Instagram.
- The bonus programs will have a dedicated hub within the Instagram applater this summer and the Facebook app later this year.
- TikTok and Snapchat have executed similar programs.
B - Netflix is planning an expansion into video games, marking its first big move beyond TV shows and films
This is big news! I wonder if they’re going to take the Apple Arcade approach with light, casual, and collaborative “party” games or hardcore series to compete with Sony, Microsoft, and Steam…
Stock Mini-dive: Teladoc Health ($TDOC)
Teladoc Health ($TDOC) is the largest provider of comprehensive virtual healthcare services. During the pandemic, the stock rallied but has fallen over 50% from its peak earlier in 2021 with the growth stock sell-off and the anticipation of the reopening.
Overview
- Delivering, enabling, and empowering integrated virtual care services and experiences that span every stage of the health journey.
- Completed approximately 10.6 million telehealth visits in 2020.
- Over 51 million unique U.S. paid Members and 22 million visit fee onlyindividuals
- Clients consist of employers, including 50% of the Fortune 500, health plans, health systems, and insurance and financial services companies.
- Brands: Teladoc, BetterHelp, HealthiestYou, InTouch Health, Livongo, and MédecinDirect
Revenue Streams
- Primarily generating revenue on a contractually recurring, subscription access fee basis.
- This is mostly set up as a per-Member-per-month (PMPM) or per-enrollee-per-month basis (PEPM).
- Revenue is also generated from health system and provider clients related to the licensed technology platform (Microsoft collaboration helps solve pain points here).
- In 2020, 79% of revenue was derived from access fees, 19% from visit fees
Risks
- Will growth hold up coming out of the pandemic?
- Will Teladoc scale into profitability? Analysts project 20%+ EBITDA margins by the end of FY2024.
- Potential legal challenges against the telehealth business model.
Financials
- Revenue grew over 97% in FY2020 after growing 32% in FY2019.
- In its last three quarters, Teladoc has grown revenue >100% YoY but will start lapping pandemic boosted numbers starting next quarter.
- At $148.85 per share, it’s currently trading at a $23.6 billion EV which is 15x forward gross profit.
Matthew's Summary:
- Telehealth isn’t going away. Chronic condition management and mental health programs are use cases with a lot of runway.
- Teladoc still has room to grow through new customer relationships and multiproduct cross-selling opportunities.
- At this price point, $TDOC is Interesting but requires a lot of belief in high YoY growth to justify the high valuation with the new few years of growth already priced in.
