conventional wisdom. It’s what we call a commonly held belief or view about something. In many cases, conventional wisdom is spot on. But not always.
Investors sometimes believe something about a particular stock that isn’t necessarily true. I’ve suspected that for a long time Teladoc health (TDOC -1.23%) was a victim of misplaced conventional wisdom in a particular area. However, there hasn’t been a good way to prove that suspicion — until now. Amazon (AMZN -0.12%) just dispelled a major myth about Teladoc.
Teladoc’s Achilles heel?
Just last week, I was discussing the merits of investing in Teladoc stock with a colleague of mine. One of the points made against Teladoc in the bear case was that it had a “questionable moat.”
This view is not an outlier. And it’s not a new criticism. You can easily find items dating back a few years and beating Teladoc for its lack of ability to fend off competitors.
The idea makes sense to a certain extent. It’s easy to connect healthcare providers with patients via video conferencing technology. Virtually anyone could do it if they wanted to.
Several large companies have entered the telemedicine market. This includes health insurance companies Zigna and United Health Grouppharmacy giant CVS Health, and – the biggest of all – Amazon. It’s understandable why the popular belief has been that Teladoc’s Achilles heel is a weak moat.
Amazon the myth breaker
But Amazon delivered amazing news this week. A leaked internal memo revealed that the company plans to shut down its Amazon Care telemedicine business later this year.
Amazon first rolled out Amazon Care in 2019 for its Seattle-area employees. It expanded the business to be competitive nationwide in 2021. At the time, some saw the move as a major threat to Teladoc.
Why would Amazon be so quick to throw in the towel in a promising growth market? Neil Lindsay, head of Amazon Health Services, wrote in a memo to Amazon Care employees, “While our enrolled members loved many aspects of Amazon Care, it’s not complete enough for the large enterprise customers that we target and don’t target would offer to work long-term.”
Think about what Lindsay said. The world’s fourth-largest public company by market cap decided it couldn’t compete effectively in the virtual care market because it “didn’t have a complete offering” for large customers.
Could Amazon have invested heavily in expanding its telemedicine services? Sure it could. However, the company decided it wasn’t worth the effort.
Guess which telemedicine provider has “sufficient supply” to attract large customers? Teladoc’s customer base already includes more than half of the Fortune 500 companies. The company continues to expand its offerings, with the Primary 360 virtual primary care product still in its early stages.
Some might point to Amazon’s acquisition plans A medical one as proof that it really doesn’t give up going against Teladoc. However, One Medical CEO Amir Dan Rubin noted in May’s first-quarter earnings call that his company is seeing a shift from virtual visits to in-person visits. Telemedicine certainly doesn’t seem to be the primary reason Amazon wants to buy One Medical.
The definition of a moat is a company’s ability to fend off actual and potential competitors. Amazon is abandoning Amazon Care because it wasn’t worth the cost of building a telehealth service that could effectively compete with Teladoc. It’s pretty clear that Teladoc does indeed have a solid moat.
There’s more to it than that
Teladoc Health has been a big loser for a while. Telemedicine stock is down 88% from its peak in early 2021. Teladoc is undoubtedly facing some headwinds that contributed to this sharp selloff.
However, I think Teladoc has more to offer than meets the eye. The market opportunity for virtual care is huge. Teladoc is the undisputed leader in this market. Perhaps, as many are predicting, the company will disappear. But as we saw earlier this week, conventional wisdom isn’t always right.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions at Amazon and Teladoc Health. The Motley Fool has positions in and recommends Amazon and Teladoc Health. The Motley Fool recommends CVS Health, CVS Health Corporation, and UnitedHealth Group. The Motley Fool has a disclosure policy.