TDOC - stevehemingway/trading GitHub Wiki

We are short Teladoc Health, Inc. ("Teladoc" or the "Company") because evidence shows that even though patients on the BetterHelp platform pay for mental health therapy from licensed therapists, with meaningful frequency, patients unknowingly receive "therapy" from AI. We think this is rotten and potentially harmful. BetterHelp knows this is wrong, because it warns on its website that therapy by AI dehumanizes patients and "may harm the mental health of clients who use it for therapy." Yet, in our opinion, BetterHelp gives its therapists perverse incentives to cut corners by using AI.

We spoke with whistleblower patients who experienced this firsthand within just the last several weeks. Incredibly, when these patients confronted their therapists, the therapists confessed to using AI! These patients were understandably shocked, hurt and outraged. We do not think these are isolated incidents. Social media overflows with patients on Trustpilot, Reddit, the Better Business Bureau and other platforms alleging that instead of real therapy, their BetterHelp therapist instead used AI. And when we asked a senior executive at a BetterHelp competitor about this practice, the executive did not mince words: "I'm absolutely sure that it's happening. They [BetterHelp] don't care."

We think that BetterHelp perversely incentives this practice by paying therapists lucrative bonuses that are tied to the quantity of words that the therapist types when responding to the patient. Long generic messages (of the type that ChatGPT, for example, can quickly deliver) pay therapists more than shorter thoughtful messages. Adding to the powerful incentives, interviews with former therapists indicate that BetterHelp incentivizes therapists to overload their schedules, then it expects therapists to also field 24/7 patient messages. We find it hardly surprising that an overworked and underpaid therapist would be tempted to reach for AI just to stay afloat.

As more patients take to social media and other online platforms to allege that their BetterHelp therapist used AI or a chatbot, we think that this will only accelerate falling BetterHelp profits and plummeting user growth. However, in our opinion, investors should have concerns beyond just BetterHelp.

We believe Teladoc is engaging in questionable accounting maneuvers to inflate its reported profitability and cash flows just as its business faces an existential crisis. We believe that the Company changed its accounting treatment of R&D, dubiously shifting about half of its R&D expense off the income statement and into investing cash flows; thereby inflating Adj. EBITDA by as much as 32% and its operating cash flows by 127% in FY 2023. This all comes at a precarious time for the Company: annual sales growth has been in consistent decline and has dropped below zero for the last two quarters, and the Company warns that customer acquisition costs will be elevated through the foreseeable future. Executives seem to be voting with their feet and their wallets. Teladoc not only experiences suspiciously frequent turnover at key medical and accounting positions, but insiders have been consistently selling stock, even as Teladoc's stock has steadily declined.

Ultimately, we think that Teladoc is far less profitable and generates far less cash than investors are led to believe, and that accounting maneuvers have concealed that the business is failing to scale. Against this backdrop, we expect the BetterHelp business to continue its downward trajectory as more patients come forward with evidence that their therapists secretly used AI. After all, why would a patient who needs help keep paying $400 a month to talk to ChatGPT?

A copy of the report can be downloaded here.