In his 2018 letter to shareholders, Amazon (AMZN 1.96%) founder and then CEO Jeff Bezos explained why taking bold risks would remain a vital component of the e-commerce titan's growth strategy.
"If the size of your failures isn't growing, you're not going to be inventing at a size that can actually move the needle," Bezos said. "Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures."
Bezos' hand-picked successor, Andy Jassy, has embraced this spirit of risk-taking. But Jassy and his lieutenants have also been quick to recognize failure.
Amazon Health Services senior vice president Neil Lindsay acknowledged Amazon's latest misstep in a memo to the division's employees on Wednesday. Lindsay said the company will shutter Amazon Care, its urgent and primary care service, on Dec. 31.
It's not clear if Amazon's losses on its latest healthcare experiment will reach into the billions of dollars, but Amazon Care was certainly a major initiative for the company. Amazon Care debuted in 2019 as a service for Amazon's own employees. Its telehealth offerings and in-home care options from traveling nurses became popular, prompting Amazon to offer the service to other companies.
The initiative appeared to be progressing. Amazon landed some marquee customers, such as upscale hotel chain Hilton Worldwide Holdings. In February, Amazon announced its plans to roll out Amazon Care nationwide.
Yet cracks began to surface. Earlier this month, the Washington Post reported that Amazon's obsession with customer satisfaction and efficiency was making it difficult for it to follow medical best practices proposed by healthcare professionals. The Washington Post also noted that a shortage of nurses was further crimping Amazon's expansion plans.
Still, Lindsay's memo came as a surprise. Jassy highlighted Amazon Care as an example of "iterative innovation" in his letter to shareholders in April. In July, Amazon struck a deal to acquire primary care chain One Medical (ONEM) for roughly $3.9 billion, further signaling the company's growing healthcare ambitions. Amazon is also reportedly attempting to acquire home health services provider Signify Health (SGFY), according to The Wall Street Journal.
It now appears that Amazon is planning to use acquisitions to alter course, rather than beef up its Amazon Care offerings.
"We've gathered and listened to extensive feedback from our enterprise customers and their employees, and evolved the service to continuously improve the experience for customers," Lindsay said. "However, despite these efforts, we've determined that Amazon Care isn't the right long-term solution for our enterprise customers."
Yet Amazon Care's setbacks will not result in a total loss. Like it's done many times in the past, Amazon will apply the lessons from its Amazon Care experiment to its future healthcare endeavors.
"As we take our learnings from Amazon Care, we will continue to invent, learn from our customers and industry partners, and hold ourselves to the highest standards as we further help reimagine the future of healthcare," Lindsay said.
So, is Amazon stock still a buy?
Although Amazon Care's failure is disappointing, there's no reason to panic. Amazon derives most of its sales from its e-commerce operations and most of its profits from its cloud computing division. Healthcare is an intriguing opportunity, but it's not central to Amazon's business.
Thus, there's no need for investors to rush to sell Amazon's stock. If you thought Amazon's stock was a buy before this Amazon Care news broke, there's little reason to alter your bullish view of the e-commerce and cloud computing titan.
Moreover, shutting down Amazon Care could make it easier for Amazon to gain regulatory approval for its pending acquisition of One Medical. Amazon likely views One Medical's convenient primary care model as a superior approach with a greater likelihood of long-term success. Amazon could thus be taking one step backward to take two steps forward with its healthcare ambitions.
