Amazon (AMZN -1.07%) has never been shy to take on a new venture, but its latest one may be its most ambitious yet: healthcare.
Big tech just hasn't been able to revolutionize this industry, and it's not Amazon's first go at it. Even when the tech titan was working with JPMorgan Chase and Berkshire Hathaway to create a healthcare joint venture dubbed Haven, that ultimately failed to achieve the desired result and was disbanded.
Last year, Amazon also shut down its own telehealth service as that, too, failed to succeed with one of its key customers being its wholly owned subsidiary, Whole Foods.
The one option that seems to never go out of style for Amazon is acquiring businesses. And in February, it closed on a $3.9 billion acquisition of primary care company 1Life Healthcare (aka One Medical). Let's assess the prospects for this latest effort.
Why the One Medical acquisition makes sense
One Medical has primary care locations in about 20 key U.S. markets, including New York and San Francisco. The company's clinics can help people with common illnesses, mental health concerns, and chronic care, as well as provide many other services, including virtual care, which is available 24/7. People can also use an app to send messages and to seek out care.
By acquiring One Medical, Amazon can instantly pick up where it left off with developing a telehealth service. And at the same time, it adds an established primary care business into the mix. Plus, there are also opportunities for Amazon to potentially combine services with its online pharmacy, which can help manage customer prescriptions and have them sent to their door.
There are many potential synergies available for Amazon, which is why the deal could be a good one for the tech company. And one thing it is already doing out of the gate is lowering costs for new users to increase growth. New U.S. customers will only have to pay $144 for their first year, versus the $199 it previously cost to obtain a membership with One Medical. The membership includes the virtual care service, online appointment booking, and prescription requests and renewals from within the app.
It could be competing against some big names
Primary care has been a popular area for companies to invest in lately. Retail pharmacy giants CVS Health and Walgreens Boots Alliance have both been making efforts to provide primary care.
Walgreens has invested in primary care operator VillageMD, and the two companies plan to have over 600 primary care practices at Walgreens locations open by 2025. CVS, meanwhile, recently announced plans to buy Oak Street Health for over $10 billion. Then there's Walmart, which has been rolling out clinics of its own.
There's going to be no shortage of competition for Amazon to face if it's serious about moving deeply into healthcare.
Could more deals be on the way?
One Medical reported more than $1 billion in revenue last year. That's just a tiny blip for Amazon, which generated a whopping $514 billion in 2022. The tech giant will likely need to do more deals if it's serious about making a big dent in healthcare. It was rumored to be in talks to acquire home health company Signify Health last year, before losing out to CVS.
But with just under $54 billion in cash and cash equivalents as of the end of last year, Amazon will have no trouble finding other deals it can pursue as its vast resources could give it a big advantage should it want to make healthcare a serious part of its business.
Should you buy Amazon's stock on this news?
Amazon could be a worrisome opponent for healthcare companies like CVS and Walgreens. With its deep pockets, it can become a big player in the industry if it wants to do so.
But that's the key part -- if it wants to. It has been more than five years since Amazon bought Whole Foods and it hasn't exactly taken over the grocery industry. I could see the same thing happening in healthcare, where the company makes a few acquisitions but doesn't seriously pursue healthcare enough for it to account for more than a few percentage points of its revenue, if that.
And so while I think Amazon's acquisition of One Medical is a good move, I wouldn't buy the stock based on the purchase because that alone isn't going to open up significant growth opportunities for Amazon in healthcare. One Medical is a good addition to its business, but Amazon will need to do a lot more before it can become an attractive healthcare investment.
The tech company is a good long-term buy for its e-commerce segment along with its highly profitable AWS business, but just don't expect it to dominate the healthcare industry anytime soon.
