Health and Healthcare

Should These Digital Health Care Firms Fear Amazon Care Expansion?

Paul Ausick

Published: March 18, 2021 10:28 am

Since September of 2019 when Amazon.com Inc. (NASDAQ: AMZN) first announced its Amazon Care program for employees in Washington state, the company’s stock has added about 77% to its share price. The company most threatened by Amazon’s limited entry into the health care business was Teladoc Health Inc. (NASDAQ: TDOC).

Since that Amazon announcement, Teladoc’s shares have increased by 175%, and that includes a drop of around 50% in the share price since early February. Another entry in the digital health care industry since Amazon Care was announced is 1Life Healthcare Inc. (NASDAQ: ONEM), which came public in January of last year.

On Wednesday, Amazon announced that Amazon Care is now available to other employers in Washington state and that, beginning this summer, the service will expand its virtual care to companies and every Amazon employee in all 50 states. Amazon Care’s in-person services also will expand to include Washington, D.C., as well as Baltimore and other U.S. cities, over the next several months.

Amazon Care is just the latest Amazon foray into the health care business. Last November, the company launched its Amazon Pharmacy service, built around its 2018 acquisition of medication delivery startup PillPack.

When Amazon coughs, everyone catches a cold. In the health care sector, retail pharmacies and pharmacy benefits management (PBM) providers took a hit to their share price of about 9% following Amazon’s purchase of PillPack.

The 2019 announcement of Amazon Care snipped nearly 3% of Teladoc’s share price, and Wednesday’s announcement shaved nearly 5% from the shares. 1Life’s shares dipped 3.5% between Tuesday’s close and Wednesday’s open and another 2% by Thursday’s open.

In an update for investors published Wednesday, Richard Close and Brian Hoffman of Canaccord Genuity examined the impact of Amazon Care’s expansion on Teladoc and 1Life (the firm refers to 1Life as “One Medical”). They begin by noting that in the more than 16 years they’ve been covering health care technology and services, “entrance of bigger competitors has not been a wildly successful endeavor.” Competitors don’t come much bigger than Amazon, with its $1.6 trillion market cap.

Even though the analysts say that it will take time for Amazon to earn trust, “Amazon has proven itself as a formidable competitor in all other areas it has entered.” They also note that the much-publicized health care joint venture with Berkshire Hathaway and JPMorgan shut down a three-year effort called Haven intended to create an independent company “free from the profit-making incentives and constraints” of a for-profit health care firm to improve health care satisfaction and lower health care costs for their employees.

Canaccord Genuity maintained a Buy rating and $330 price target on Teladoc, and it noted the company’s potential to add 65 million members to its client base. Amazon has limited its telemedicine program to employers and has not yet addressed the payer (insurance providers) market that Teladoc serves.

As with Teladoc, Canaccord Genuity maintained its Buy rating and $64 price target on 1Life. The analysts believe that the company’s partnerships with local health providers in each market it serves “may help insulate the company from competition (including Amazon) going forward.”

Overall, according to analysts Close and Hoffman, Amazon’s other moves into health care have caused only temporary declines in other health care stocks. However, they continue:

In the past, rumblings of Amazon’s healthcare services interests have been buying opportunities. We realize now may be different as the strategy has been “formalized.” However, we do not see that this has materially damaged the near-term opportunity for solid growth by the companies we cover. There should be ample opportunities for sustained growth going forward.

Teladoc’s shares traded down about 1.3% at $187.55 early Thursday morning, in a 52-week range of $132.07 to $308.00. The stock’s consensus price target is $259.81

1Life’s stock traded down more than 4% Thursday, at $40.41 in a 52-week range of $15.00 to $59.82. The consensus price target is $54.67.