Teladoc/BetterHelp: Vulnerable Patients Exposed To ‘Growth At Any Cost’ Culture

The Street is not aware of how significant TDOC mental health play BetterHelp has become to TDOC organic growth; we estimate it now represents 70% of organic subscription revenue growth.

The Street is not following the recent YouTube/BetterHelp scandal which caused a massive defection of YouTubers who decided to stop promoting BetterHelp due to controversy around the unit’s sales practices.

We question BetterHelp’s vetting protocols – as of September 28, 2018, BetterHelp still offered appointments with a therapist who was indicted on rape allegations nine months earlier.

Our industry and credit card analysis suggests ~60% of BetterHelp patients churn off within the first month – with its YouTube lead engine now compromised, we expect rapid revenue erosion.

Teladoc owes investors and patients answers as to what the company is doing to curtail BetterHelp’s questionable sales practices – until this happens, the stock is, in our view, ‘uninvestible’

Executive Summary

Teladoc acquired BetterHelp in January 2015 in order to enter the mental health market. Since the acquisition, BetterHelp revenues have exploded from almost zero to a projected $60 million in FY18. Teladoc has provided investors with limited detail about BetterHelp. As a result, the Street does not realize how significant BetterHelp has become to Teladoc organic subscription revenue growth. Later in this report, we show that BetterHelp could be contributing as much as 70% of organic subscription revenue growth to Teladoc. Just a few weeks ago, BetterHelp found itself at the center of a major controversy regarding its economic arrangements with YouTube Influencers. Critics allege that BetterHelp has been profiting off individuals with mental health problems. Criticism of BetterHelp has revolved around its model of compensating YouTube influencers to push BetterHelp onto their followers. There has also been vocal criticism surrounding BetterHelp’s terms of services. We also found evidence that BetterHelp is not doing enough to vet its therapists – we found an example of BetterHelp offering appointments in September 2018 with an individual who was indicted on rape allegations nine months earlier. Hundreds of YouTube Influencers appear to be defecting from BetterHelp, ceasing their prior promotion of the service. As a result, we expect Teladoc revenues to materially suffer going forward. We also expect there will be significant regulatory and legal liability arising from the scandal that is just starting to develop. As a result, we believe Teladoc shares are ‘uninvestible’ until management addresses the BetterHelp situation head on.

https://seekingalpha.com/article/4216391-vulnerable-patients-exposed-growth-cost-culture