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Will an expansion into healthcare boost the Amazon share price?

The Amazon [AMZN] share price hasn’t performed well so far this year. But with the tech giant working on products and services for both consumers and hospitals, what will this foray into healthcare mean for the company, especially as it faces competition from the likes of Walmart [WMT] and Alphabet [GOOGL]?

The Amazon share price has risen 3.7% in the year-to-date to $3,380 at the close on 22 September, marking an 8% climb in the last 52 weeks. The Amazon share price is down less than 1% from its all-time high of $3,377.08, which it set during intraday trading on 13 July.

 

 

 

Despite being the worst-performing FAANG stock in the year-to-date, the key to Amazon’s success is its diversified business, including a move into healthcare, capitalising on the pandemic-driven telehealth boom. The Telemedicine & Digital Health ETF [EDOC] has cumulatively returned 21.2% since its inception through to the end of August, having launched at the end of July last year. The Invesco QQQ Trust ETF [QQQ], which has Amazon as its third-biggest holding with a weighting of 8.34%, has a one-year daily total return of 36.1%, according to Yahoo Finance data.

 

Amazon Care’s national rollout

The company’s move into healthcare started in early 2020 with the launch of Amazon Care, a long-awaited virtual primary care offering for Seattle-based employees to use for everyday health queries. Among other things, the mobile app offers users virtual consultations and access to in-person consultations when needed.

Then in March this year, Amazon Care was rolled out to more than 40,000 Amazon employees across the US, while the ecommerce giant has reportedly inked deals to provide telehealth services to multiple companies.

40,000

Number of US Amazon employees Amazon Care was rolled out to in March 2021

  

The potential impact of Amazon’s healthcare business on the bottom line is not yet known. However, it’s a sign of how Amazon Web Service (AWS) is spreading its cloud computing and data management tentacles. AWS leads the cloud market, and the segment brought in revenue of $14.81bn in the three months to the end of June, up 37% year-over-year and up 9.7% sequentially from $13.5bn reported in the first quarter of 2021. Although accounting for just 13% of its total revenue of $113.08bn for the second quarter of 2021, the segment continues to be the best performer.

Amazon is, of course, not the only big-name company muscling into the healthcare space. Alphabet has Verily, its life sciences subsidiary, which is pushing into clinical care and, in August, announced a two-year collaboration with Mayo Clinic to develop tools to support decision-making. And Walmart has agreed to buy virtual care specialists ​​MeMD.

 

A boon for Amazon’s share price?

Earlier this year, Jason Gorevic, CEO of Teladoc [TDOC], said he wasn’t worried about the new players entering the market. “This pandemic has thrown the whole market into motion,” Gorevic told CNBC’s Healthy Returns Summit in May. “Everyone feels like they have to have a press release that says something about telehealth to be relevant. I’m not surprised by any of these moves.”

Others on Wall Street agree that Amazon’s foray into healthcare isn’t a threat to Teladoc — yet. Sean Wieland, a senior research analyst focusing on healthcare at Piper Sandler, wrote in an email to CNBC that he was “leery of Amazon’s initiatives here”.

“Even Amazon would have to get the enterprise market onboard one employer at a time, as it’s a highly fragmented market and that would take years. Also, it’s a significant lift to go from offering urgent care visits on-demand to whole-person healthcare,” Wieland added.

“Even Amazon would have to get the enterprise market onboard one employer at a time, as it’s a highly fragmented market and that would take years. Also, it’s a significant lift to go from offering urgent care visits on-demand to whole-person healthcare” - Sean Wieland, senior research analyst at Piper Sandler

 

Charles Rhyee, a senior research analyst, covering healthcare technology and distribution at Cowen & Co, isn’t concerned about Amazon either. “Where Teladoc sits is not what Amazon is doing. It’s not just basic video visits to speak to a doctor for a minor thing,” Rhyee told CNBC.

He likened the moves Amazon is making in basic healthcare and pharmacy to Walmart’s acquisition of MeMD: “They want to provide some basic connectivity and prescriptions that can be dispensed.”

However, Brent Thill, an analyst at Jefferies, seemed to take a longer-term view, recently telling the Financial Times that Amazon is only just getting started with healthcare. Its AWS business has the artificial intelligence and cloud expertise to eventually go beyond basic healthcare and pharmacy.

“They don’t need to crack the code overnight. But if they can figure this out, it’s like… ‘look out’.”

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