Amazon (AMZN 1.33%) already has conquered two enormous markets that boast double-digit growth. The company is a global leader in e-commerce and cloud computing services. And these businesses are generating billions of dollars in revenue for Amazon each quarter. But Amazon isn't stopping there.
The powerhouse is ready to gain ground in another massive market: healthcare. Over the past few years, Amazon has been experimenting in the area and building up a presence in everything from telemedicine to pharmacy services. Now, Amazon is making a healthcare move that may serve an extremely broad audience. Could all of these efforts make healthcare Amazon's next major market? Let's find out.
A bumpy path
First, a little background on Amazon's foray into healthcare so far. The path hasn't been completely smooth. In fact, it's been pretty bumpy. Last year, Amazon shut down its Amazon Care service after determining it wasn't the right long-term offering for its customers. Amazon Care provided telemedicine as well as some in-person services. The service only existed for about three years.
Amazon also stumbled after three years with Haven, its venture with Berkshire Hathaway and JPMorgan Chase. The companies had launched that project to lower the rising costs of healthcare.
NASDAQ: AMZN
Key Data Points
But Amazon hasn't been discouraged. And it's seen some successes, too. The company bought online pharmacy PillPack back in 2018 and used that as a springboard to launch Amazon Pharmacy two years later. Amazon Pharmacy even offers members of Amazon's Prime program free two-day delivery and as much as 80% savings on prescription drugs.
Last year, Amazon announced its plan to buy 1life Healthcare, known as One Medical, a primary care organization that combines in-person and virtual care. The Federal Trade Commission is reviewing the deal.
Meanwhile, Amazon is moving forward with solutions it can offer directly to consumers right away. The company recently launched Amazon Clinic. The idea is people who have come down with a common problem like sinusitis or a cold sore can fill out an online questionnaire and a medical professional will prescribe them medication to treat it. This service isn't only for Prime members. Anyone can benefit in the 33 states where Amazon offers the program. The cost of consultations varies, but they tend to be about $30.
Unlimited prescriptions
Amazon's latest move, RxPass, offers unlimited prescriptions of common generic drugs -- such as those for high blood pressure or acid reflux -- to Prime members. It only costs an extra $5 a month. This could represent huge savings for Prime members who currently spend more than that per month for their prescription drugs.
The audience for this kind of service could be huge. Today, more than 66% of American adults rely on prescription drugs, according to a report by Georgetown University's McCourt School of Public Policy. And Amazon Prime is forecast to reach 176.2 million members in the U.S. by 2025, Statista data show. It's unknown how many will sign up for RxPass. But if a quarter of them do, Amazon could generate more than $2.6 billion in revenue annually from the monthly fees.
Now, the question is: Can Amazon actually generate significant profit from RxPass? Amazon already has an extensive fulfillment network in place. So, the storage and delivery of medicines shouldn't be too costly for the company.
To determine profitability, a lot will depend on the prices Amazon negotiates for drugs. And here, things look positive. When negotiating with suppliers, Amazon probably will be able to win the lowest possible drug prices thanks to the large audience it serves. This could keep the price of RxPass low -- and help lift Amazon's margins.
Amazon's billion-dollar revenue
Could this really be Amazon's next big market? It's unlikely healthcare will generate the same kind of revenue as e-commerce or cloud computing anytime soon. In the most recent quarter, the cloud computing business, for example, reported $20 billion in net sales. Amazon's total revenue topped $127 billion.
And it's important to remember Amazon so far hasn't been an overnight success in its healthcare ventures. Just because Amazon has major resources doesn't mean it will score a win every time.
Still, Amazon Clinic and RxPass both offer customers convenience in areas where they need it the most. And at affordable prices. That means these new programs may have what it takes to deliver Amazon a success story in healthcare.
But will that eventually bring it close to the levels of the e-commerce and cloud businesses? It's still too early to say. So, right now, I wouldn't buy Amazon just for its healthcare business. But the stock is a buy for the company's overall growth prospects.
