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The Doctor Isn't Quite Ready to Skype You Now

Alex Webb

(Bloomberg Opinion) -- Telemedicine, long hyped as a more efficient approach to health care, is finally taking off.

People who suspect they’re suffering from Covid-19 symptoms are being told to self-isolate. But they also need to seek medical advice. Many are turning towards telemedicine providers, who eliminate the need to leave home by connecting the potentially ill with medical professionals in a telephone or video call. For healthcare providers, a remote consultation is considerably more cost effective (and safer) than an in-person visit.

Telemedicine has for years promised a great deal, but previously delivered very little. All of a sudden it looks like it has genuine potential. French firm Doctolib SAS said last week that it had seen an 18-fold jump in the number of video consultations in the past month. U.S. health insurers have meanwhile agreed to cover coronavirus-related telemedicine, while the federal government has made it easier for Medicare recipients to use.

Investors are keen on buying into an industry that the market leader, Teladoc Health Inc., estimates could be worth $10 billion in annual U.S. revenue. Shares in Teladoc, the sector’s only publicly traded firm of note, have doubled in value since the start of the year – the S&P 500 is down about 30% in the same period.

With a $12 billion market valuation, Teladoc trades on 16 times predicted 2020 sales, according to Bloomberg data. That would make it the most highly valued stock in a basket of hot software companies compiled by Jefferies analysts David Windley and Ben Flox. Even tech darling ServiceNow Inc., a cloud computing firm, trades at 10 times expected sales. Small wonder analysts have been revising down their recommendations on Teladoc stock.

Superficially, the conditions are ripe for matching investment capital with an industry that needs to grow. When Tesla Inc.’s stock enjoyed a similar jump in January and February, the electric vehicle manufacturer did an opportunistic share sale. But things aren’t quite so simple for the telemedicine industry.

Volatile markets make it hard to see how Teladoc, whose shares have seen 20% swings, could sell equity or one of its rivals could raise money by going public. Venture capital firms are also targeting resources on the defense of existing investments rather than seeking out new ones. To meet the surging demand effectively, they likely need that money.

Questions over where telemedicine’s profitability will settle may also make investors pause. As with any new sector, first-mover advantages may be eroded over time by competition. New entrants have been emerging fast, with venture capital piling into the burgeoning health-tech sector. In 2018, $895 million was invested in telehealth startups, according to PitchBook data.

While Teladoc’s share-price surge is comparable to Tesla’s, its business model is more akin to Uber’s: it’s essentially a two-way marketplace. The value resides partly in the software that poses questions to patients to ensure they’re directed to the most suitable physician. The main barrier to entry is signing up enough doctors to attract patients, and (although less so today) enough patients to use the service.

In tech, the usual method of addressing such problems is to throw money at them — in this case, by providing generous financial incentives to both sides of the market to sign up. As Uber, whose software connects riders to the nearest driver, has found, fights to outspend rivals may be best avoided. The ride-hailing company sold regional businesses to well-capitalized competitors in India, China and southeast Asia — cashing out of markets where it lacks scale instead of getting into price wars in the hope of eventually emerging as the dominant player.

The need for capital is underscored by the operational challenges raised by Covid-19. Providers are still struggling to enlist sufficient doctors to meet demand, and are facing tech issues too, CNBC reported last week. Doctolib has an advantage, since it already has a database of doctors from its original business arranging medical appointments more efficiently.

The industry has an opportunity to lessen the strain on the global health system. But whether it can overcome financial and operational constraints to make a significant difference to the current crisis remains to be seen.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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