Some acquisitions look brilliant in retrospect. I'd definitely include the purchase of YouTube by Google (now Alphabet) in 2006 as one of the best deals ever.
Amazon.com (AMZN 1.30%) has had its fair share of acquisitions through the years. For example, it bought Zappos in 2009, Whole Foods in 2017, and MGM this year.
But I think that there's another transaction that's just begging to happen: Amazon should buy Teladoc Health (TDOC 3.31%) right now. I'm not kidding. Here's why this is an idea that the internet giant should seriously consider.
Image source: Getty Images.
Addressing the criticisms
Let me first address the inevitable criticisms that will be made about this proposal. Many of them will probably focus on Teladoc's recent disappointing first-quarter update.
Teladoc posted an enormous net loss of $6.67 billion on revenue of around $565 million. That could be enough to dissuade some of the wisdom of an Amazon acquisition all by itself.
However, this loss was almost entirely due to a $6.6 billion goodwill impairment related to Teladoc's own past acquisitions. It has become painfully clear that Teladoc overpaid for its 2020 purchase of Livongo Health. But that's water under the bridge now.
What about the outcry that Teladoc's management can't be trusted? This sentiment is based in large part on CEO Jason Gorevic's rosy outlook for BetterHelp, Teladoc's behavioral health business, at the Cowen healthcare conference in early March. Less than two months later, Gorevic was forced to eat his words.
Gorevic stated in Teladoc's Q1 conference call that the situation for BetterHelp did look positive in January and February. He said, though, that things began to turn downhill throughout March. Gorevic insisted that the headwinds would be temporary, however.
Whether or not you believe Gorevic is irrelevant when it comes to a potential acquisition of Teladoc by Amazon. Management can always be replaced in a buyout (and often is).
The right move at the right time
So why should Amazon buy Teladoc? Quite simply, I think it's the right move at the right time.
Amazon has already expanded into the telehealth market. The big company launched its Amazon Care service to external customers last year. But Amazon isn't anywhere close to mounting a threat to Teladoc at this point.
I can say that with confidence by looking at Teladoc's Q1 update. The company remains the undisputed leader in virtual care, with more than half of the Fortune 500 in its client base. Even with Teladoc's reduced 2022 guidance, revenue is still expected to jump in the ballpark of 20% this year.
There's a solid argument to be made that Teladoc's growth could improve beyond 2022. The company's Primary360 is still only in its early innings. It's probably going to take a few years for the virtual primary care product to ramp up. And if Gorevic is correct about the issues for BetterHelp being temporary in nature, the behavioral health business will pick up in the not-too-distant future as well.
I think that Amazon wants to dominate the telehealth market. To do so, it will either need to outcompete Teladoc or gobble up its rival. The latter is the much easier alternative.
Telemedicine stocks, in general, are now available at much more attractive valuations than they've been in the past. But Teladoc is arguably a steal, with its shares trading at around 2.4 times expected 2022 sales.
Amazon had nearly $66.4 billion in cash, cash equivalents, and marketable securities at the end of March. The company could pay twice Teladoc's current share price in an acquisition deal without breaking a sweat.
Weighing the odds
What are the odds that Amazon actually will buy Teladoc? I'd guess that they're lower than 50-50.
Amazon has other issues of its own to address. The company also disappointed investors with its Q1 results (although not nearly as badly as Teladoc did). Amazon's executives and board might not be enthusiastic about an acquisition that could be met with scorn by some.
On the other hand, Amazon's share price is already down quite a bit. Buying Teladoc probably wouldn't cause much short-term pain, especially if the price was right. If Amazon does acquire Teladoc, I think that it could very well turn out to be a brilliant decision over the long run.
