What happened
On Thursday, Amazon (AMZN 1.30%) announced an aggressive push into healthcare. Investors in Teladoc Health (TDOC 3.31%) hit the panic button upon hearing the news, sending Teladoc shares down as much as 8.7% at the open.
So what
We've known for a while that Amazon had an interest in healthcare, going as far as partnering with Berkshire Hathaway and JPMorgan Chase a few years ago to explore ways to modernize U.S. health. Still, the company's Thursday announcement that it would acquire primary healthcare clinic operator 1life Healthcare (ONEM) for $3.5 billion came as a surprise.
1Life operates as One Medical, a membership-based primary care practice with offices in 12 major U.S. markets. It also provides virtual care and telehealth services, making it a powerful platform for Amazon to use if it wants to roll out a more modern form of medicine to a broader population.
"We think healthcare is high on the list of experiences that need reinvention," Amazon senior vice president Neil Lindsay said in a statement. "Together with One Medical's human-centered and technology-powered approach to healthcare, we believe we can and will help more people get better care, when and how they need it. We look forward to delivering on that long-term mission."
Modernizing healthcare, specifically through telemedicine and virtual appointments, is central to Teladoc's mission. Although 1life is not a head-to-head competitor with Teladoc, it is easy to see how investors could interpret Amazon's big push as a long-term competitive threat.
Teladoc shares might have been under pressure on Thursday even without the Amazon deal. On Wednesday, after markets closed, Barclays analyst Steve Valiquette lowered his price target on Teladoc to $42 from $45, keeping an equal weight rating on the shares. Valiquette said that he is taking a more conservative stance on the company's long-term outlook.
Now what
It's worth noting that Teladoc shares made back most of what they lost after the initial sell-off, and as of 11 a.m. ET were down less than 1%. It is hard to say exactly what the appropriate reaction should be, but the quick plunge would appear to be an overreaction.
For one, the market is already well aware that Teladoc was going to face significant competition and wasn't going to have a long-term monopoly on telemedicine. Teladoc shares are down more than 70% over the past year on questions about the long-term competitive landscape, and the potential that telemedicine could be commoditized. Teladoc's value is in its well-constructed system to provide telemedicine, which should be useful to some users even if it doesn't have a dominant market share.
One could argue the Amazon deal could even be bullish for Teladoc if the retail giant is able to mainstream new healthcare delivery methods and bring virtual medicine to more people. For now, a lot of people prefer traditional doctor visits because that is what they are used to. If Amazon can help change habits, a lot of companies could benefit.
Teladoc remains a company with a promising concept trying to work out the details and figure out its place. That was true yesterday, and remains true even after Amazon's big acquisition. Investors already knew there were potential competitive threats on the horizon. The only difference now is that we can put a name to that threat.
