Amazon (AMZN -0.16%) may be best known for its e-commerce and cloud computing businesses. But the tech company has been expanding into another major market in recent years: healthcare. It has become a player in the pharmacy, telemedicine, and primary care spaces.
Recently, though, Amazon announced it was taking a step back on one of those fronts. It has decided to shutter Amazon Care, its telemedicine plus in-person healthcare business. Is this a sign of weakness for Amazon's wider plan to grow in the world of healthcare?
The Amazon healthcare picture
It's important to consider the entire Amazon healthcare picture. The company got into the business in 2018 when it bought mail-order pharmacy PillPack. It rebranded that operation to create Amazon Pharmacy. Subscribers to Amazon Prime can benefit from the best prices, free delivery of their prescription medicines, and the availability of pharmacists 24/7.
Amazon Care launched in 2019. Initially, Amazon offered the service only to its own employees, then expanded it beyond the company. Now, it's shutting it down. Management said Amazon Care wasn't a "complete enough" offer for big corporate customers, and for that reason, the business wouldn't work over the long haul. In the virtual-only marketplace, Amazon faced market leader Teladoc, among other smaller players. Teladoc already serves more than half of Fortune 500 companies and expects as much as $2.5 billion in revenue this year.
But Amazon recently announced another big move in healthcare. It's set to acquire One Medical -- a provider of in-person and virtual primary care across the U.S.
So is Amazon's move to shutter the healthcare business it created a sign of weakness? Especially since Amazon Care placed a big focus on telemedicine. And that's one of healthcare's high-growth markets. The U.S. telemedicine market is expected to grow at a compound annual rate of more than 15% between now and 2027, when it would reach nearly $26 billion, according to a report by Polaris Market Research.
The right decision
Amazon's move to halt Amazon Care isn't a sign of weakness. It's a sign of wisdom. The company made the right decision to step away and instead focus on a strategy that might be more profitable -- buying a company with services that may be complete enough to attract the clients Amazon wants. More than 8,000 companies already use One Medical's services for their employees, and the One Medical network includes more than 125 locations across the country.
The One Medical acquisition also will help Amazon differentiate itself from pure-play telemedicine companies. By buying a strong player in this newish business model that combines in-person care and telemedicine, Amazon may have a better chance of success. And its offering could appeal to three audiences: those who favor telemedicine, those who prefer in-person visits, and those who like a bit of both.
With both pharmacy and primary care operations, Amazon could indeed make its mark in the world of healthcare. We also should keep in mind that healthcare doesn't have to be a huge growth business for Amazon. It's already a leader in e-commerce and cloud computing. The cloud computing business -- Amazon Web Services (AWS) -- has been a key profit driver for the company, providing more than 70% of its total operating income last year.
Healthcare will be a great addition to Amazon's portfolio of businesses. It's likely to add to the company's growth over time. And if Amazon doesn't emerge as one of the biggest players, that's just fine. The long-term performances of its two main businesses are reasons enough to be positive about this stock.