Tech giant Amazon (AMZN 0.08%) is constantly on the hunt for new growth opportunities. One of the most lucrative areas it has been focusing on of late is healthcare. Although it ditched its telehealth business last year, Amazon Care, the company has made multiple moves on that front to bolster its long-term prospects within the industry.
In August, Amazon landed a big win when a major customer announced it was moving away from a top pharmacy-benefits manager. Here’s what happened and what it could mean for investors.
Blue Shield to use Amazon and other providers
CVS Health‘s Caremark business is a top pharmacy-benefits manager which holds a lot of power in the industry.
But one company — Blue Shield of California — has recently announced it is going to shift away from Caremark, at least for most of its services. Due to high costs and the lack of availability of some drugs, Blue Shield said it would be using other companies, including Amazon, to access cheaper medication.
Blue Shield will be working with five different companies and says that by doing so, it can reduce its costs by up to $500 million annually. So this isn’t an exclusive partnership for Amazon, but it’s still an impressive win for the company, and it could prove to be a big test for it.
Blue Shield of California is a health insurance provider which serves approximately 4.8 million people and generates $24 billion in annual revenue. If other regional providers end up following suit and partner with Amazon, it could be proof that its healthcare business is starting to materialize.
Amazon acquired online pharmacy PillPack in 2018, and in 2020 launched Amazon Pharmacy and has since been expanding its presence in healthcare.
Building up its healthcare assets
Switching to Amazon to save money on prescriptions isn’t terribly surprising as the company’s focus is to compete on price. Earlier this year, Amazon announced a $5 per-month subscription plan, RxPass, for Prime members to have access to generic medications for over 80 health conditions and have them delivered to their door, for just that flat rate.
But drugs are just one part of its healthcare strategy. This year, Amazon also closed on its acquisition of primary care company One Medical, which will allow it to reach patients directly rather than just online.
Amazon is also leveraging artificial intelligence (AI) to open up more opportunities. Through its cloud business, Amazon Web Services (AWS), the company has launched AWS HealthScribe, which promises to save time for physicians by using AI and speech recognition to help with patient documentation.
Healthcare is an area that Amazon has been showing a lot of interest in of late and that can lead to more growth opportunities for the business in the long run. And with $64 billion in cash and investments on its books, the company has plenty of resources at its disposal should it want to dive deeper into healthcare.
Does this make Amazon a better buy?
Amazon’s stock has risen close to 60% in value this year as investors have become more bullish on growth stocks, and the tech company has also been delivering stronger results of late; after posting a loss last year, it has now been back in the black for four consecutive quarters.
At more than 60 times its estimated future profits, however, the stock is an expensive investment to own. Although Amazon is on the right track, investors appear to be pricing in a lot of its future growth. Unless you’re prepared to hold the stock for decades, you may want to hold off on buying shares of Amazon as it could still take a long time for its healthcare business to make much of an impact on its top and bottom lines.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.