Teladoc (NYSE:TDOC), iQiyi (NASDAQ:IQ), and Aurora Cannabis (NYSE:ACB) target very different markets, but each is on the cusp of opportunities that could fuel years of market-beating growth. Here’s why on-demand, virtual doctor visits; a massive, increasingly tech-savvy population in China; and global marijuana legalization could make owning Teladoc, iQiyi, and Aurora Cannabis in growth portfolios a profit-friendly decision.
A small healthcare provider making waves
Nicholas Rossolillo (Teladoc): Virtual healthcare is a nascent industry, but it is already dominated by a single player: Teladoc. Though it went public just a few years ago, the company has grown to dominate three-quarters of the U.S. virtual care market, and is the only provider with a global footprint. With trailing 12-month revenue of only $372 million through the third quarter of 2018, this small tech-powered health concern is just getting started.
Don’t expect Teladoc to stay small for long, though. As awareness of the ability to visit with a doctor or health professional over the phone or internet increases (be it everything from an annual checkup to mental health consultation to medical triage), Teladoc is in position to benefit the most. With three-quarters of 2018’s financial results now in the books, revenue is up 89% year over year. That’s a testament to the company’s ability to grow access fees — which it earns from health insurance providers and big employers that want participants to have virtual care access — as well as the number of paid visits. In the third quarter, total access fees and total visits increased 62% and 110%, respectively.
Management forecasted full-year 2018 revenues to be in the $414 million to $416 million range, a 78% increase over 2017. The company isn’t profitable yet, as it is funneling cash back into the business to promote maximum growth, but profits could be right around the corner. 2018 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is expected to be $12 million to $14 million, compared with a loss of $12.5 million the year prior.
Sitting in the driver’s seat of the disruptive virtual care industry — and healthcare in general in dire need of some changes — Teladoc could be an up-and-coming stock worth owning a few shares of for the long haul.
The long-term thesis is still intact
Jamal Carnette, CFA (iQiyi): Approximately 10 months into its history as a publicly traded company, iQiyi stock is approximately 10% below its IPO price of $18. However, this is only part of the story, as the stock once traded as high as $40 per share before harshly reversing on greater macroeconomic concerns in its home country of China.
Despite the short-term sell-off, iQiyi’s growth story remains intact. The “Netflix of China” continues to grow its top line rapidly — third-quarter revenue increased 48% from the prior year last quarter — and total subscribers nearly doubled. iQiyi continues to have a large runway for growth; last year the China Internet Network Information Center announced 802 million residents were actively using the internet — for comparison’s sake, there are only 320 million U.S. citizens — and that’s only 60% of the country’s population!
There certainly are risks: In addition to a slowing Chinese economy, iQiyi currently operates at a significant loss with cost of goods sold exceeding revenue last quarter. (Its financials look better on a cash flow basis due to significant amortization, a noncash expense.)
However, the combination of demographics and increased Internet accessibility will keep iQiyi’s top line growing for years to come. Long-term investors with a high tolerance for volatility should put the company on their watch lists.
Soaring sales are on deck for this pot stock
Todd Campbell (Aurora Cannabis): Canadian cannabis companies are about to see their sales soar following the grand opening of the country’s recreational marijuana market last October. So far, demand has outstripped supply, suggesting billions of dollars in revenue could flow to top growers, including Aurora Cannabis.
This week, Aurora Cannabis gave investors their first look at how big of an impact recreational marijuana is to its financials. The company’s preliminary calendar fourth-quarter sales (its fiscal second quarter) are expected to exceed 50 million Canadian dollars, up from less than CA$12 million in the same quarter one year ago and less than CA$30 million in the prior quarter.
The surge in sales is mostly due to recreational demand, and what’s particularly encouraging for investors is that we’re only in the early innings of this opportunity. For perspective, Deloitte estimates recreational sales in Canada could range between CA$1.8 billion and CA$4.34 billion in 2019.
To capture as much of this market as possible, Aurora Cannabis has bought competitors — including MedReleaf, a major medical marijuana player in Canada — and is plowing big money into next-generation greenhouses that can produce more marijuana cheaply. It will be a while before the company achieves enough scale to produce meaningful earnings for investors, but $150 billion is spent annually on marijuana worldwide, including $50 billion in the U.S., so it could be only a matter of time before investors are cheering this company’s profitability.
Jamal Carnette, CFA has no position in any of the stocks mentioned. Nicholas Rossolillo owns shares of Teladoc Health. Todd Campbell owns shares of Netflix and Teladoc Health. Todd’s clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Netflix and Teladoc Health. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.