Healthcare is hard. At least that's the sentiment from large tech companies that want to expand their operations into the $4.1 trillion U.S. healthcare market.
To see just how difficult it is to make a difference in this country's convoluted market for providing healthcare services, just look at the efforts of Amazon (AMZN -1.40%). In 2018, the tech giant joined forces with Berkshire Hathaway and JPMorgan Chase on a major project that they hoped would lower healthcare expenses for their own employees -- but they shut down that project in early 2021.
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In 2019, Amazon made waves again when it launched its own telehealth offering -- Amazon Care. This began as a service for Amazon employees and was rolled out nationwide this February.
The stock price of Teladoc Health (TDOC -0.16%) fell at the time because investors were nervous that it wouldn't be able to compete with Amazon in the telehealth space. Instead, Amazon found marketing telehealth services so hard that it recently decided to pull the plug on Amazon Care.
NYSE: TDOC
We probably should have known something was wrong when this February, Amazon Care still touted its contract with Whole Foods Market -- an Amazon subsidiary -- as a significant client win. As it turns out, the grocer was one of the few big businesses willing to sign up with Amazon Care.
Earlier this month, the company announced to a handful of media outlets that Amazon Care would stop operating at the end of 2022. According to Amazon, it just wasn't a sustainable, long-term solution for its enterprise customers.
For the moment, it looks like this is a huge win for Teladoc Health. As my colleague Keith Speights pointed out recently, it suggests that Teladoc Health has a competitive advantage over potential rivals. After all, Teladoc expects total revenue to grow more by about 20% this year while Amazon Care is disbanding.
A deal with CVS Health's (NYSE: CVS) Aetna subsidiary is one of the reasons Teladoc Health expects significant growth this year. Of course, signing on with Teladoc Health to facilitate virtual visits makes sense for CVS Health. The healthcare conglomerate already has access to thousands of physical doctors' offices. Connecting virtual visits with in-person visits shouldn't be an issue for this partnership.
But Teladoc Health investors should understand that the shuttering of Amazon Care doesn't mean Amazon is admitting defeat in the battle for the U.S. primary care market. Instead, it looks like part of a larger plan to revamp the virtual healthcare services business model in a way that requires a big physical footprint.
In July, Amazon agreed to acquire technology-powered primary care organization One Medical for $3.9 billion. There are also rumors that Amazon could bid upwards of $8 billion for Signify Health in competition with UnitedHealth Group. This hybrid primary care provider has a network of 3,500 sites that provided 1.9 million in-home health evaluations in 2020.
Teladoc doesn't have to worry about competing with virtual care offerings from Amazon for the rest of 2022, and perhaps even into 2023. It's just a matter of time, though, before virtual providers without a strong network of primary-care physicians in physical locations take a backseat to those that do.
Amazon hasn't completed its acquisition of One Medical yet, but it most likely will. And even if Amazon loses its bid for Signify Health to UnitedHealth Group, the tech giant will probably become a major contender in the rapidly evolving market for hybrid primary care. The e-commerce and cloud computing behemoth finished June with a whopping $37 billion in cash on its balance sheet.
Teladoc Health finished June with $881 million in cash, so buying its way into primary care probably isn't an option. Teladoc Health isn't a bad stock to hold, but starting a long position right now probably isn't a great idea.
https://www.fool.com/investing/2022/08/30/why-the-end-of-amazon-care-isnt-a-win-for-teladoc/
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