Amazon's (AMZN -0.16%) mission has always been to be Earth's most customer-centric company.
What's unique about that approach is that it doesn't confine the company to any single industry. Though Amazon is best known for its e-commerce operation, the company also owns Amazon Web Services (AWS), a leading cloud infrastructure service; it produces gadgets like e-readers, tablets and voice-activated devices; it runs a video streaming service; it's become a heavyweight in logistics, and it even owns Whole Foods.
Amazon seeks to disrupt any industry where it can add value by prioritizing customers and for years, it has eyed the $800 billion healthcare industry. In 2018, it paid nearly $1 billion to acquire online pharmacy PillPack, and since then, it has opened virtual Amazon Care clinics. In 2018, it also formed a joint venture called Haven, with Berkshire Hathaway and JPMorgan Chase to tackle the exorbitant healthcare costs, but the initiative failed and has been closed.
Now, Amazon is taking its biggest step yet into the healthcare industry with its $3.9 billion (including debt) all-cash takeover of 1Life Healthcare (ONEM), known by consumers as One Medical. On Thursday, Amazon announced its plans to pay $18 a share for the health tech company, a premium of 77% over its closing price yesterday, showing serious interest in getting the deal done. Amazon's stock did not react much to the development. 1Life shares surged nearly 70% on the news.
Amazon gets serious about healthcare
One Medical calls itself a "human-centered, technology-powered U.S. primary care organization." It offers both in-person and virtual care, seeking to make healthcare more affordable, accessible, and enjoyable.
The company was founded in 2002 and finished its most recent quarter with 767,000 members, a 28% increase from the prior year. For 2022, it expects revenue of $831 million to $853 million, and an adjusted EBITDA loss of $130 million to $150 million.
It's not clear what Amazon intends to do with One Medical -- if it will fold it into the Amazon Care brand, or have it continue to operate separately -- but the press release explained why Amazon finds One Medical attractive.
Neil Lindsay, SVP of Amazon Health Services said the company believes healthcare is in need of reinvention, saying, "We see lots of opportunity to both improve the quality of the experience and give people back valuable time in their days." He added, "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." Human-centered and tech-powered sounds a lot like how Amazon would describe its approach to business.
Amazon did say that Amir Dan Rubin will stay on as CEO of One Medical.
Should you buy Amazon stock now?
There's no doubt that the healthcare market presents a mouthwatering opportunity for Amazon. It's a giant industry, one of the few big enough to move the needle for Amazon, and it's been highly profitable for established incumbents. The industry is also notorious for opaque pricing and providing terrible patient experiences. In other words, many Americans would be happy to see Amazon step in with its reputation for customer service and willingness to take risks.
However, the acquisition of One Medical isn't a guarantee of Amazon's success in healthcare. Its track record with acquisitions has been mixed. When Amazon bought Whole Foods, supermarket stocks plunged on the news, but in the five years since the acquisition, Amazon has struggled to increase Whole Foods' market share. In healthcare, Amazon still seems far from being a true disruptor. The PillPack acquisition hasn't made Amazon a force in the pharmacy business, and its telehealth venture has yet to catch fire. Haven, the joint venture, was a notable flop.
Amazon tends to acquire companies in order to enter a market after it tries and struggles to go it alone. That doesn't mean the One Medical deal is a bad move. In fact, it shows Amazon is more serious than ever about making a play for the healthcare market, which is good news for Amazon investors hoping for new growth avenues. But it's too soon to judge whether the acquisition will ultimately pay off, especially as Amazon hasn't commented on any specific strategic initiatives related to the deal.
Looking at the big picture, the move is a reminder of why Amazon stock has dominated over the decades. The company is unafraid to tackle new industries and has consistently leveraged its reputation for customer service and its Prime membership program to successfully enter new categories. Amazon Prime gives the company a direct relationship with more than 200 million households globally and it's easy to see how that advantage can drive its growth in healthcare.
Today, the best reason to buy Amazon may be its cheap stock price as shares have pulled back sharply this year. Its history of growth and ramping profit margins thanks to AWS doesn't hurt either. In other words, Amazon doesn't need to succeed in healthcare for the stock to outperform, but disrupting the massive industry would certainly sweeten the deal.