shares Tilladock Health (TDOC -0.88%) It rose last week after the company reported better-than-expected third-quarter results. The company still couldn’t report significant profits, but losses in the third quarter were much less than investors had expected from the telehealth provider.

Last week, Teladoc Health stock surged a surprising 24%, and investors want to know if they can expect more gains from now on. To see if this company has what it needs to deliver significant gains to its shareholders, let’s take a look at why it’s been on the rise lately.

Why Teladoc Health Stock Jumped Lately

Teladoc Health shares recently had one of their best days in a long time because the company reported a much smaller third-quarter loss than investors are used to. The cancellation of the acquisition of Livongo in 2020 resulted in a loss of $9.8 billion during the first half of 2022.

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Instead of another huge loss in the third quarter, the company lost just $73.5 million. While investors would have preferred to profit, the modest loss of $0.45 per share was well below the $0.55 per share expected by Wall Street.

Reasons to buy Teladoc Health now

In addition to the bottom line approaching positive territory, there are other indications that Teladoc Health could deliver gains for sick investors. In the third quarter, total revenue increased 19% year-over-year as the number of paying members reached 57.8 million.

In theory, the value of the Teladoc Health platform increases as more patients and clinicians become familiar with it. The company wins the race to develop the network effect. It facilitated more than 4.7 million visits in the third quarter, which is a 14% increase over the prior year period.

Reasons to stay careful

Any tech-based company that has more than 50 million paid members and still can’t make ends meet should be viewed with some skepticism. I’m not a buyer of this stock because I don’t think the Teladoc business has any pricing power.

If Teladoc Health’s overall size helps it claim higher rates than its smaller competitors, adjusted EBITDA will rise as a percentage of revenue. Instead, adjusted EBITDA declined to 8.4% of total revenue in the third quarter from 13.9% at the end of 2021.

Furthermore, Teladoc Health likely wouldn’t be the largest provider of telehealth services for very long, if not already taken out of the position. Venture-backed Doctor On Demand isn’t a public company subject to the same disclosures as Teladoc, but we know it has 98 million covered lives right now.

Teladoc’s biggest competitor in the coming years will likely be healthcare benefit managers delving into primary care. Providing health care benefits is an increasingly lucrative option for a small handful of giant companies that also collect health insurance premiums. Instead of using Teladoc to facilitate virtual doctor visits, Cigna I got MDLive last year.

earlier this year, CVS Health With a proposed $8 billion acquisition of sign of health. This is a network of 10,000 doctors that will connect with 2.5 million unique members this year through a combination of in-person and virtual visits.

Doesn’t look good

Facilitating virtual health care is such a commodity service that even pandemic-fueled lockdowns couldn’t get Teladoc Health’s bottom line out of the red. Now that giant healthcare benefits managers have focused so heavily on primary care benefits, making a profit in this competitive space will become even more difficult. Without a clear path to profitability, Teladoc Health is best viewed from a safe distance.

Cory Renauer does not have any position in any of the listed stocks. Motley Fool has positions with and recommends Teladoc Health. The Motley Fool recommends CVS Health and CVS Health Corporation. Motley Fool has a disclosure policy.

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