Teladoc CEO: VC Backed Mental Health Startups are Making “Economically Irrational Decisions”

Teladoc continues to see disappointing earnings Image by Ahmad Ardity from Pixabay | CC0

Teladoc CEO Jason Gorevic blames its mental health subsidiary BetterHelp’s disappointing Q1 results on smaller digital behavioral health startups driving up advertising costs.

The company reported $565.4 million in revenue during the quarter, missing its expectations by $3.23 million. During the call Gorevic said the company is lowering its 2022 guidance as a result of headwinds in its behavioral health and chronic care business segments.

Following the earnings call, Teladoc’s stock price dropped overnight by more than 40%.


Specifically, paid search and paid social media advertising drove up its cost per acquisition for BetterHelp, its direct to consumer behavioral health product.

“I would say that we strongly attribute that to smaller private competitors who have been recently well funded with a rash of venture capital money flowing into that space and making what we would consider to be economically irrational decisions,” Gorevic said during Teladoc’s Q1 earnings call.

Teladoc bought online therapy service BetterHelp for $4.5 million in 2015. BetterHelp posted a strong performance in 2021 raking in $700 million in global revenue However, Gorevic said that the continued pressure from startups that raised over $5 billion in 2021 has resulted in growth and margin contribution from BetterHelp that is below the company’s February expectations.

Image by Ahmad Ardity from Pixabay | CC0

Gorevic dismissed these newer startups that prescribe controlled substances using virtual models as a long term threat for the business. It is important to note that Teladoc does not provide customers access to controlled substances.

“We don’t think either of those practices either bidding up the search auctions or prescribing controlled substances, is a sustainable practice. And we’re going to continue to focus on running a long-term profitable growth business,” Gorevic said.

Gorevic pointed to a new story published in the Wall Street Journal, which reported some of the clinicians from digital mental health companies including Done Health and Cerebral Inc. had their prescriptions blocked at pharmacies such as Walmart and CVS.

“[W]e believe — we know that some companies are exploiting the temporary suspension of the regulations that prohibit the prescription of controlled substances during the national health emergency,” he said “For better or for worse, that puts us at a bit of a competitive disadvantage relative to those who do.”

Point solutions slowing up chronic care segment

Mental health was not the only area where Teladoc saw lower than expected growth. Its chronic care sales pipeline also developed slower than anticipated. Gorevic said that he saw two major factors that led to a drawn out selling cycle.

“The first was in the employer market, where we saw benefit managers focused on COVID and return to work, which we felt was contributing to a longer decision making process,” he said. “The second was a large pipeline of health plan deals that were simply harder to predict when it comes to timing, given the size and complexity of those clients.”

Teladoc isn’t the only traditional telehealth provider struggling on the public markets. Amwell announced a EBITDA loss of $41.1 million during its recent Q4 call. The virtual care provider, which has also taken bets on the mental health space with its acquisition of SilverCloud, projected that losses will continue into 2022.

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