Teladoc Inc (NYSE:TDOC) missed earnings and issued lower guidance in its latest report. This comes as revenues more than doubled for the quarter and as telehealth begins to gain greater acceptance. The potential for Teladoc remains enormous as it has become the dominant company in the emerging telehealth industry. Although holders of Teladoc stock will have to endure years of losses, the company remains well on track to dominate this emerging industry.

Teladoc Stock Doubled Quarterly Revenues

For the fourth quarter of 2017, the company reported a loss of 76 cents per share, missing the 51-cent per share consensus by a wide margin. TDOC lost 31 cents per share in 4Q 2016. For 2017, the company lost $1.93 per share, compared to $1.75 per share in 2016.

The losses occurred despite improved revenues in 2017. For 4Q 2017, revenue came in at $77.1 million, a 106% increase from 4Q 2016. For all of 2017, revenue grew 89% and reached a level of $233.3 million. Most of the revenue came from increased doctor visits. The site handled 464,000 doctor visits in the fourth quarter and 1,463,000 for all of 2017. The full-year number represents a full-year increase of 54%, down slightly from the 61% growth rate enjoyed in 2016.

As for 2018, the company believes it will bring in $86-88 million in the first quarter and $350-$360 million for the year. Analysts had been looking for $83.79 million in the quarter. The yearly guidance is in line with the $355.95 million estimate. Still, earnings guidance disappointed. The company expects a 43-45-cent loss in 1Q 2018, slightly below the 42-cent loss analysts had expected. The $1.23 loss expected for 2018 will also see a downward revision as the company now expects between $1.36 and $1.41 in 2018 losses.

Teladoc Stock’s Enormous Potential

Despite disappointing numbers, the stock surged in trading the next day. TDOC holds a 75% market share in the industry with a rate of market penetration under 1%. An office visit with Teladoc costs as little as $40, a cost that runs over $100 at an office. Considering the estimated one-third of all doctor visits that can be conducted remotely, the potential for telehealth sells itself.

Also, TDOC is well ahead of its peers. Every direct competitor remains in a start-up phase mired in losses. Its peers trade on the over-the-counter markets if they trade publicly at all. Most of the attention has revolved around privately-held companies such as Tytocare, partially funded by Walgreens Boots Alliance Inc (NASDAQ:WBA). Also, Doctor on Demand received some attention as Qualcomm, Inc. (NASDAQ:QCOM) became a backer. However, over 250 of the Fortune 1000 companies currently work with Teladoc to help provide employee care.

At first glance, Teladoc appears to be a call center with a narrow moat. However, Teladoc addresses this issue by improving its diagnostic abilities. Last year, Teladoc acquired Best Doctors, a company which brings doctors together to address complex medical issues. It also announced its certification with Surescripts in February that will provide its doctors with real-time medication history.

As a result, Teladoc achieved record volumes of visitors in 2017. Many credit the company with meeting demand during this year’s flu season. Despite the record number of flu-related doctor visits, Teladoc provided timely care to over 300,000 flu patients in a five-week period.

Mounting Losses a Concern for Teladoc Stock

However, Teladoc stock comes with concerns on the financial side. One major worry for investors remains stock sales. In November, an additional 4.08 million shares of Teladoc stock were sold by the company to raise money to repay loans and add working capital to the balance sheet. While this dilution negatively affects current investors, it provides a longer runway, which should help TDOC stock take off in the long term.

Another reason pertains to mounting losses. The needed acquisitions have come at a high cost. Teladoc losses increased from 2016 levels despite revenue nearly doubling. Moreover, with mounting debts, a diluted stock, and losses expected to continue into the 2020s, investors have to wonder how long it will take to earn a profit and how the company will fund itself in the meantime.

Diagnosis on Teladoc Stock

Teladoc stock serves as the best gateway to the emerging telehealth industry. However, with losses predicted for years in the future, Teladoc carries some risk despite the potential market and the revenue growth. TDOC missed quarterly earnings by 25 cents per share and issued lowered guidance for 2018. In 2017, the company nearly doubled revenues and added assets that will bolster its diagnostic capabilities.

To be sure, seeing losses move higher concerns some investors. Still, the stock price rose the next day, despite the negative earnings news. And, with its leadership in a new market that could ultimately support a large percentage of all doctor visits, the potential for growth remains too large to ignore Teladoc stock.

As of this writing, Will Healy is long TDOC stock.