A COVID Creation

A COVID Creation

Since Teladoc announced their merger with Livongo, valuing Livongo at an astonishing $18.5 BILLION we have stated this merger was created by COVID. As we head into trading today on year to date basis shares of Teladoc are up over 130% while shares of Livongo are up over 404%. Just by way of comparison shares of United Airlines are down over 54% while their rival American has seen shares sink over 52%. As Momma Kliff used to say one man’s misery is another man’s opportunity.

Be that as it may one has to wonder what will happen AFTER COVID. Yes we know the world has been changed forever but the question remains will the changes we have seen with COVID, the explosion of telemedicine, the increased usage of health apps and the heightened awareness of remote patient monitoring continue once COVID is gone.

Thanks to a survey by Accenture we’re beginning to get some answers to these questions. In this survey of over 7,800 consumers the company found;

38% of respondents ranked data privacy or security as their top concern with digital tools and services. Another 20% were most concerned about the effectiveness of these tools. The survey also found that consumers aren’t averse to virtual medicine depending on who’s providing the service. 54% said they would be willing to receive virtual care provided it came from a traditional healthcare provider while only 21% said they would feel comfortable with a start up venture.

Interestingly prior to COVID consumers usage of digital health tools, apps and wearables, was DECLINING. While 48% of consumers said they used health apps in 2018, only 35% did at the start of 2020. Wearables also saw a steep decline, falling from 33% in 2018 to 18% in 2020.

So the question becomes once COVID goes away will consumers continue to use these tools or as prior to COVID will usage continue to fall. A question which has huge implications for Teladoc/Livongo as their entire business model and future revenue stream is based on the assumption that usage will continue to increase and will not fall off after COVID is gone. Teladoc/Livongo is not like UnitedHealthcare which will make money one way or another after COVID is gone, their business model and revenue stream was not created by COVID.

While there is no way to know this, but we believe had COVID not come there would be no Teladoc/Livongo but there sure as hell would be a UnitedHealthcare. There is no way in hell that Teladoc would have valued Livongo at $18.5 BILLION. Nor would they force major dilution on their existing stakeholders. This deal would NEVER happen without COVID. The companies are trying to disguise the deal as strategic but it’s just a smoke screen. As we noted Teladoc could have achieved the same synergies at a much cheaper price if they really wanted to.

The fact is no one knows what the post-COVID world will look like. However we can use another seismic event that changed the world as an example to follow. Next Friday is 9/11 and we all remember that horrible day and the changes it brought. Like COVID the immediate aftermath of 9/11 brought air travel to a halt, families huddled at home afraid to venture out and everyone became more aware of their surroundings. Some of the changes brought by 9/11 remain in place today but many have gone away as life returned to a new normal. We suspect the same will happen when COVID goes away with some changes remaining while others will vanish. A new normal will emerge just as it did after 9/11. We just don’t know if that new normal includes continued usage of telemedicine in the numbers we see now or whether consumers will continue to use all the digital health tools they have been using because of COVID.

The folks at Teladoc/Livongo are betting the ranch that in a post-COVID world telemedicine digital health will become the new normal. We just aren’t so sure and believe it is more likely that some of the trends that were in place prior to COVID will return. Time will tell but one thing for certain is we wouldn’t be betting $18.5 BILLION on a huge maybe.