In the rapidly expanding world of virtual healthcare, Teladoc Health’s direct-to-consumer behavioral health service, BetterHelp, has been one of the largest players in the market. However, after years of hypergrowth, the company is now shifting its focus. Rather than continuing on a trajectory of aggressive expansion, Teladoc has decided to “decelerate” BetterHelp’s growth, opting for a more balanced and sustainable approach. This transition comes after BetterHelp surpassed a billion dollars in revenue in 2022, and it reflects a broader shift within the company to balance top-line growth with profitability and cash flow, prioritizing sustainable growth in virtual mental health.
Mala Murthy, Chief Financial Officer of Teladoc, addressed this shift during the company’s Q3 earnings call, emphasizing that the company is now prioritizing profitability alongside growth. She noted, “After scaling rapidly to surpass a billion dollars of revenue last year, we have since taken a more balanced approach to growth and margin at BetterHelp. This means we’ll continue to prioritize profitable growth that meets or exceeds our return requirements.” This strategy, focused on sustainable growth in virtual mental health, is designed to position BetterHelp for long-term success, balancing the drive for expansion with the need for financial health.
BetterHelp’s Financial Results: A Modest Growth Strategy
The latest financial results from Teladoc reflect the company’s adjusted growth strategy. BetterHelp’s revenue for the third quarter increased by a modest 8% year-over-year, reaching $286 million. This growth, while positive, marks a significant deceleration compared to the rapid expansion seen in previous years. Additionally, BetterHelp experienced a slight sequential decline of 2% compared to the previous quarter, which was in line with Teladoc’s guidance.
Despite this deceleration, Teladoc is seeing steady growth in terms of user engagement. The number of average monthly users increased by 5% year-over-year, signaling that the demand for virtual mental health services continues to grow. More impressively, BetterHelp’s adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) reached $26 million, marking a 133% increase from the previous year. This sharp rise in profitability indicates that the company’s shift towards more balanced and sustainable growth in virtual mental health is already yielding positive financial outcomes.
Navigating the Advertising Environment
One of the key drivers behind BetterHelp’s shift in strategy is the changing dynamics of digital advertising. The company has historically relied heavily on advertising to attract new users, but this approach has become increasingly costly due to competition from smaller digital behavioral health startups. As these startups ramp up their marketing efforts, the cost to convert advertisements into customers has risen, prompting Teladoc to reassess its advertising strategy.
Teladoc’s scale provides it with a unique advantage over smaller competitors. Murthy explained, “If you look at [BetterHelp], which is the largest player in the DTC virtual mental health space, by far, we are also the largest advertiser of virtual mental health. Unlike many of our smaller peers, our scale enables us to drive and earn strong returns on our spending and that gives us a real advantage.” This competitive edge allows BetterHelp to continue to generate strong returns on its advertising spend, making it more efficient than its smaller counterparts.
However, as Murthy pointed out, there are limitations to how much growth can be driven through advertising. “There’s only so much incremental ad spend and customer acquisitions you can drive in any short period of time. There’s just a natural growth to that every year as the market shifts more and more towards virtual and the channels themselves grow. So that does limit the amount a DTC business can profitably grow year after year.” This acknowledgment of natural market constraints highlights the reality that growth in the digital space cannot continue indefinitely at the same rapid pace. Instead, businesses like BetterHelp must find ways to sustain sustainable growth in virtual mental health without relying solely on advertising.
Focusing on Productivity and Innovation
While the company has scaled back its marketing and acquisition efforts, Teladoc remains committed to improving operational efficiency, particularly when it comes to the productivity of BetterHelp’s therapists. Improving therapist productivity is central to ensuring that the company can continue providing high-quality care without incurring unnecessary costs.
Murthy outlined several steps being taken to enhance productivity, including the adoption of group therapy sessions and increasing digital interactions between therapists and clients. These initiatives are designed to optimize the time therapists spend with clients while expanding access to care. By improving the efficiency of its therapy offerings, BetterHelp can serve more clients while maintaining the quality of care that has made the platform so successful.
In addition to these operational improvements, Teladoc is also investing heavily in artificial intelligence (AI) to boost the efficiency of BetterHelp’s services. The company has already highlighted AI initiatives in previous earnings calls, focusing on ways AI can improve the matching process between members and therapists. AI can help better understand user preferences and needs, enabling the platform to connect clients with the right therapist more quickly and accurately. This technological investment aims to enhance both user satisfaction and overall platform productivity, further supporting sustainable growth in virtual mental health.
Long-Term Vision for BetterHelp
Teladoc’s acquisition of BetterHelp in 2015 for $17.2 million now seems like a highly strategic move, especially considering that the service generated over $1 billion in revenue in 2022. Even though the company is now focusing on sustainable growth rather than rapid expansion, the long-term outlook for BetterHelp remains positive. Teladoc’s diversified approach to scaling—combining effective advertising, AI-driven efficiencies, and a focus on therapist productivity—positions BetterHelp to continue as a leader in the virtual mental health space.
Teladoc’s ability to shift its focus from sheer growth to a more balanced and sustainable growth in virtual mental health strategy is a clear indicator of the company’s commitment to long-term success. While this slower pace may result in lower immediate revenue gains, it will likely strengthen the brand’s position in the marketplace by focusing on profitability and efficiency. By keeping a close eye on cash flow and profitability, Teladoc is preparing BetterHelp for the next phase of growth in a rapidly evolving digital health landscape.
Conclusion: A New Era for BetterHelp
BetterHelp’s shift from a phase of rapid growth to a more measured and profitable growth strategy is a reflection of the maturing digital health space. Teladoc’s decision to balance growth with margin and cash flow will help ensure that BetterHelp remains a sustainable and profitable entity in the long term. The company’s strong position in the market, coupled with its investments in AI and therapist productivity, shows that Teladoc is preparing for a future where digital mental health services continue to play a vital role in addressing the growing demand for virtual care.
While growth may be slowing, BetterHelp’s ability to adapt to changing market conditions and innovate with new technologies will likely keep it at the forefront of virtual mental health services for years to come. As the market for online mental health services matures, Teladoc’s balanced approach to sustainable growth in virtual mental health could prove to be the key to continued success in this ever-changing industry.
