Are Telehealth Stocks A Better Buy Than Video Conferencing Stocks During The Pandemic?
The stock market has seen major indexes gaining back what was lost during the market sell-off in March. But with the potential for a second wave of Covid-19 just around the corner, investors are having a flashback of the coronavirus market sell-off once again. Looking back, there has never been a pandemic in recorded history that did not see a resurgence. Should the novel coronavirus stage a revival, can we expect to see the market to slide in the same magnitude, if not worse than what we experienced in March?
In anticipation of such an event, investors are looking for defensive stocks or stocks that can rally sharply from the second wave. For instance, Netflix (NFLX Stock Report) was one of the key beneficiaries of the lockdown measures. Sure, revenue growth for the streaming giant could still be higher if the pandemic causes a permanent shift in content consumption patterns. The same applies to Teladoc (TDOC Stock Report) and Zoom (ZM Stock Report). Could the telemedicine and videoconferencing companies rally again in another potential coronavirus induced bear market?
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Teladoc Stock Is Bullish With Or Without Coronavirus
Telemedicine is expanding. Millennial and Generation Z patients like the idea of virtual services. Now with the coronavirus pandemic, people wish to consult a doctor from the comfort of their confined space, fearing of catching the virus on the way to meet their physicians. Investors saw the potential of this healthcare stock immediately. As such, TDOC stock has risen by 130% year to date.
In the first quarter of 2020, the number of online consultations on Teladoc’s platform totaled 2 million, double the number in the same period the year before. Teladoc reported that its first quarter revenue was up 41% from last year. Meanwhile, the company is projecting its revenue for the entire year will amount to between $800 million and $825 million, representing nearly 100% growth compared with 2019.
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Disruption to Healthcare Industry A Gain For Teladoc Investors
While still operating at losses, Teladoc has seen massive growth, just like any other tech stocks in their early days. As the company’s profit outlook continues to improve, many analysts are forecasting that the company will turn profitable in 2022. Moreover, stay-at-home orders began to be implemented only in the later part of the first quarter. For this reason, stockholders probably do not know the full extent to which Teladoc benefited from the pandemic this quarter. With that being said, is this one of the top online healthcare stocks to buy right now?
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Can Zoom Continue To Work Its Magic?
When the pandemic was in full swing, Zoom saw the number of participants using its meeting software reach a peak of 300 million per day in April. This unprecedented level of growth from just 10 million in December has been magnificent. Of course, such massive success will attract the attention of cybercriminals and hackers. Privacy and security issues aside, however, the company’s problems mostly come from its efforts to monetize its subscribers.
The new security update we saw a few weeks ago was met with mixed reactions from the end users. It faced criticism from civil rights groups for its plans to exclude free users from encryption services. As such, the video conferencing company reversed its course. It now decided to provide end-to-end encryption to all customers, and not just those who pay for a subscription. The enhanced encryption will be available starting in July.
While the company’s revenue increased by 169% in the first quarter of 2020, to $328 million, the company’s sales and marketing expenses nearly doubled too, to $121 million. The massive spending on advertising could eat away a significant portion of cash on its balance sheet. That could make ZM stock a less desirable buy compared to TDOC stock. In comparison, the telemedicine company only spent $18 million in sales and marketing expenses. Also, against Zoom’s price-to-sales ratio of 85, Teladoc looks affordable at 23 times sales. Unless Zoom comes up with additional ways of monetizing its business, it will pose a risk to investors. With all that being said, Teladoc stock appears to be a more attractive option than Zoom stock currently.