Livongo

Livongo Health was a digital health company that pioneered a new approach to managing chronic conditions, most notably diabetes. Using a combination of smart technology and human coaching, Livongo aimed to empower individuals to take control of their health while simultaneously reducing costs for the healthcare system. The company provided members with cellular-connected devices, like blood glucose meters, that would upload data in real-time. This data was then analyzed to provide personalized feedback, alerts, and access to certified health coaches. Livongo’s business model was to sell its services not directly to consumers, but to large organizations like employers, health insurers, and government entities, who would then offer the program to their employees or members as a benefit. After a highly successful IPO in 2019 and a period of astronomical growth, Livongo was acquired by Teladoc in 2020 in a landmark $18.5 billion deal, one of the largest digital health mergers in history. The subsequent performance of the merged entity has made the Livongo story a fascinating case study for investors.

Imagine trying to manage a chronic illness like diabetes. It's a daily grind of tracking, testing, and decision-making. Livongo’s genius was in making this process easier and smarter. Their flagship program, “Livongo for Diabetes,” gave members a cellular-connected blood glucose meter. Unlike old-school meters that required manual logging, Livongo's device automatically sent readings to a cloud-based platform. If a reading was dangerously high or low, the member would get an instant alert on the device, followed by a text message or even a call from a health coach. This “Applied Health Signals” platform turned raw data into actionable insights, helping members understand their condition better and make healthier choices. The goal was simple but powerful: better health outcomes for the individual and lower long-term costs for the payer.

Livongo used a “Business-to-Business-to-Consumer” (B2B2C) model. This means they didn't spend millions on TV ads to convince you to sign up. Instead, they sold their platform directly to large “enterprise clients”—think Fortune 500 companies, major health plans, and labor unions. These clients would pay Livongo a per-member-per-month fee, and then offer the service to their eligible members (the consumers) for free. This was a win-win:

• For Clients: They could offer a valuable health benefit that demonstrably lowered their overall healthcare spending by preventing costly emergency room visits and hospitalizations.
• For Livongo: It allowed for efficient growth. Signing one large company could bring in thousands of new members at once, leading to a much lower customer acquisition cost than a direct-to-consumer approach.

For investors, Livongo’s journey was a rollercoaster, offering crucial lessons about growth, valuation, and corporate strategy.

Livongo went public in July 2019 and quickly became a Wall Street darling. Its revenue growth was explosive, often more than doubling year-over-year. The COVID-19 pandemic acted as a massive tailwind, accelerating the adoption of virtual care and digital health solutions. The stock price soared, and at its peak, Livongo traded at a sky-high price-to-sales ratio—a valuation that priced in not just perfection, but a future of flawless, uninterrupted hyper-growth. For a moment, Livongo seemed like an unstoppable force that was fundamentally changing healthcare.

In August 2020, at the height of its valuation, Livongo announced it was merging with telehealth leader Teladoc in an $18.5 billion all-stock deal. The logic was to create a one-stop-shop for virtual care, combining Teladoc's “episodic” care (like a virtual doctor's visit for the flu) with Livongo's “longitudinal” care for chronic conditions. However, the aftermath was brutal for shareholders. The combined company’s stock collapsed over the next two years. Integrating two large, distinct businesses proved difficult, growth slowed dramatically post-pandemic, and competition intensified. Teladoc was eventually forced to take massive write-downs on the value of the acquisition, effectively admitting it had paid far too much. The Livongo name was absorbed, and its legendary stock ticker, LVGO, vanished.

The Livongo saga is a masterclass for any value-oriented investor.

• Growth at an Unreasonable Price: Livongo was an excellent, innovative company. However, an excellent company can be a terrible investment if you pay too much for it. The astronomical valuation left no margin of safety. When growth inevitably slowed from its blistering pace, the stock had nowhere to go but down. It’s a classic reminder that price is what you pay, value is what you get.
• “Diworsification” and Merger Risks: The legendary investor Peter Lynch coined the term “diworsification” for when a company expands or merges in a way that destroys value instead of creating it. The Teladoc-Livongo merger is a textbook example. The expected synergies never fully materialized, and the combined entity struggled with a lack of focus. The massive amount of goodwill on the balance sheet from the overpriced acquisition became an anchor that eventually sank investor returns.
• The Durability of a Moat: A key question for any value investor is the strength and durability of a company’s moat. Livongo was a first-mover and had a great brand. But were its barriers to entry truly high? As it turned out, the technology could be replicated, and the digital health space quickly became crowded with competitors, from nimble startups to healthcare giants, all fighting for the same enterprise clients. This competition put pressure on pricing and growth, proving its moat was not as wide as its peak valuation implied.