A class action lawsuit was filed against Teladoc Health, Inc. (NYSE:TDOC) on May 17, 2024. The plaintiffs (shareholders) alleged that they bought TDOC stock at artificially inflated prices between November 2, 2022 and February 20, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Teladoc Health stock during that period can click here to learn about joining the lawsuit.
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Teladoc Health claims to be the world leader in whole-person virtual care, including primary care, mental health, and chronic condition management. The company operates a health tech platform that offers individuals, organizations, and care providers access to virtual care. Teladoc’s reporting segment, BetterHelp, an online mental help counseling service, is at the heart of the lawsuit.
The plaintiffs maintain that TDOC and two of its senior officers (Individual Defendants) deceived investors by lying and withholding vital information about the company’s business practices and prospects during the Class Period. Particularly, the Defendants are accused of omitting truthful information about the company’s spending on advertising and its effects on revenue from SEC filings and related material.
The information became clear on February 20, after the market closed, when Teladoc Health published its Q4 FY23 results and held an earnings call. The company noted that its advertising costs for FY23 amounted to $668.8 million, higher than the $623.5 million reported in FY22 and $416.7 million recorded in FY21. The company attributed the increase to higher digital and media advertising costs related to BetterHelp, while also citing declining yields on marketing spend. At the same time, BetterHelp’s revenue in Q4 FY23 showed no growth compared to the prior year period. In fact, it declined 3% sequentially.
Notably, during the Class Period, the Defendants made statements regarding advertising spend that read, “If you think about how we do our ad spending in that, we can choose [sic] where on the efficiency curve, we want to be as we balance growth and profit, right?” The company also cited a growing number of memberships in its BetterHelp unit and noted that solid tailwinds remain for the business in the long run.
As per the class action lawsuit, Teladoc Health caused its shares to trade at artificially inflated prices by knowingly and recklessly misleading investors about the company’s business practices during the Class Period.
Notably, TDOC stock declined 23.7% on February 21 and has fallen nearly 55% so far in 2024, massively impacting shareholders’ returns.
