Teladoc faces new investor lawsuit over marketing spend
NEW YORK, UNITED STATES — Virtual care company Teladoc Health may be facing another class action lawsuit filed on behalf of its investors.
The lawsuit alleges that Teladoc made false or misleading statements and failed to disclose that it continued to increase marketing spending, particularly regarding its mental health offering, BetterHelp.
The lawsuit, Stary v. Teladoc Health, Inc. et al., was filed on May 17 in the U.S. District Court for the Southern District of New York. The defendants named in the suit include Teladoc Health, Inc.; Jason Gorevic, who stepped down as the company’s CEO in April after 15 years; and Mala Murthy, who served as chief financial officer before stepping in as acting CEO upon Gorevic’s departure.
Gorevic’s resignation followed a 22% drop in the company’s stock price after missed fourth-quarter earnings estimates and projected decreased revenue for 2024.
Claims of inefficient marketing spend
The lawsuit alleges that Teladoc publicly acknowledged that increasing marketing spend on BetterHelp would be inefficient due to market saturation, yet continued to expand its marketing efforts throughout 2023. This increased spending reportedly deteriorated the company’s revenue, leading to a significant fall in its stock price.
The suit also claims that Teladoc made public statements about having a “long runway” for BetterHelp’s membership growth, despite membership remaining unchanged or decreasing throughout the year.
Financial impact on Teladoc
According to the lawsuit, Teladoc’s fourth-quarter 2023 earnings report revealed substantially increased advertising costs, primarily driven by digital and media advertising for BetterHelp. The report indicated that BetterHelp’s revenue fell by $1 million compared to the previous year and by about $10 million from the third to the fourth quarter of 2023.
Additionally, BetterHelp lost members for two consecutive quarters despite increased advertising spend, and Teladoc’s overall revenue was flat compared to the prior year and down 3% sequentially, falling short of expectations.
In response to the lawsuit, a Teladoc spokesperson stated, “While we are aware of the filing, we’ve not been served. We won’t comment on pending litigation other than to say that the company will vigorously defend itself.”
Legal challenges of Teladoc
This potential lawsuit follows a series of legal and financial challenges for Teladoc. In March of last year, the Federal Trade Commission (FTC) fined BetterHelp $7.8 million for allegedly sharing consumer data with third parties for advertising purposes.
Additionally, a federal judge dismissed a previous securities class-action lawsuit against Teladoc related to its $18.5 billion merger with Livongo, citing the company’s SEC filings that acknowledged potential integration challenges.
As Teladoc navigates these legal hurdles, the outcome of the new class action lawsuit remains to be seen.
