A bombshell deal just hit the digital healthcare space. Giant ($17.2 billion) telemedicine company Teladoc Health Inc. (TDOC:NYSE) announced its merger with digital chronic care provider Livongo Health Inc. (LVGO:NASDAQ) for $18.5 billion.
This is a huge deal that will generate a lot of interest in the telemedicine space.
The merger creates a robust virtual doctor's office in Teladoc. The new company now offers both routine care and chronic care services. Livongo specializes in digital diabetes care. It has 410,000 members on its digital platform. And that is a tiny (1.3%) fraction of the potential market.
The deal looks expensive. Teladoc paid $18.5 billion for Livongo. Here's how that breaks down:
Teladoc paid 55x Livongo's 2020 estimated revenue, or 36x 2021 estimated revenue. That's a huge gamble on the future of telemedicine.
But it was also a huge win for Livongo investors. The price locked in a triple for investors in Livongo's initial public offering (IPO) in July 2019.
That begs the question, "Who is next?"
There aren't many junior telemedicine companies out there. Here's a quick summary of five candidates listed in both Canada and the U.S.
CloudMD Software & Services Inc. (DOC:TSX.V; DOCRF:OTCQB; 6PH:FSE): Cloud MD is a digital medical service that offers routine care. Similar to Teledoc, it services customers across Canada. It recently bought a U.S.-based mental health and complex care clinic.
The company's growth looks great. Bloomberg estimates that Cloud MD will grow revenue by 111% from 2020 to 2021.
DarioHealth Corp. (DRIO:NASDAQ): DarioHealth is a global digital therapeutics company that specializes in diabetes and hypertension management. It's the closest peer to Livongo in this group of companies. It recently raised $28.6 million to expand its business from individuals to companies.
Bloomberg estimates a 62% growth in revenue from 2020 to 2021.
Trxade Group Inc. (TRXD:OTC.MKTS): Trxade is an e-commerce site for prescription drugs. It allows customers to price shop for prescription drugs. It runs "the largest technology platform serving the pharmaceutical supply chain." It is the eBay of prescription drugs.
Bloomberg estimates 10% growth in revenue from 2020 to 2021.
VitalHub Corp. (VHI:TSX.V): Vitalhub is a digital data provider that serves the mental health, addictions and long-term care community. It supplies a suite of services to reduce gaps and streamline record-keeping.
Bloomberg estimates 28% growth in revenue from 2020 to 2021.
Streamline Health Solutions Inc. (SRTM:NASDAQ): Streamline Health optimizes billing, coding and documentation for medical service providers. Its digital accounting services improve financial performance for healthcare providers.
Bloomberg estimates a 42% decline in revenue from 2020 to 2021.
It's clear that digital healthcare is exploding during the current pandemic. These companies should grow along with it. According to Polaris Market Research, the U.S. telemedicine market will reach $17.1 billion by 2026. That's up from $6.6 billion in 2019.
And while these companies are small, their price to revenue is a fraction of what Teladoc paid for Livongo. If you are looking for speculations in digital health, these five are worth digging into.
Reach Matt Badiali at www.mattbadiali.net.
Matt Badiali is a geologist and independent financial analyst. He spent fifteen years researching and writing about great investments inside the natural resources sectors. He can be reached at www.mattbadiali.net.
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