Amazon unveils new healthcare service: Is the stock a buy?

Amazon hasn't given up on virtual care after all.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon's (NASDAQ: AMZN) big news so far this week was the announcement on Monday that the company plans to lay off 10,000 workers. However, the e-commerce and cloud-hosting giant followed up with an even more surprising development.

On Tuesday, the company introduced its new virtual care service, Amazon Clinic, which "connects customers with affordable virtual care options when and how they need it." Is Amazon stock a buy after the unveiling of this new healthcare service? 

The second time's the charm?

If this story sounds really familiar, it should. Amazon launched another virtual care service called Amazon Care in 2019. However, the company is shutting that service down by the end of this year.

How does Amazon Clinic differ from Amazon Care? For one thing, it's much more limited in scope. Amazon Clinic will provide virtual care only for about 20 common conditions. These include acne, allergies, migraines, and urinary tract infections. 

Amazon Care was available nationwide. Amazon Clinic, though, will at least initially be available in only 32 states. Amazon Care also offered in-person healthcare services in many cities, while Amazon Clinic will provide only virtual care services. 

With Amazon Clinic, customers will be able to choose from a list of licensed telehealth providers. However, they'll have to pay for the services out of pocket. Amazon Clinic won't accept insurance, at least for now.

Potential impact

Amazon's shares jumped nearly 4% in early trading on Tuesday. Were investors celebrating that Amazon will once again join the ranks of telehealth stocks? Maybe a little. However, the main reason for Amazon's surge was that all the major market indexes rose after October wholesale prices increased less than expected.  

The reality is that the impact of Amazon Clinic on the company's overall business will almost certainly be quite small. Amazon generated revenue of $127.1 billion in the third quarter. It would take a lot of virtual care visits to even amount to chump change in comparison to that massive sales total.

Sure, Amazon Pharmacy could receive a boost from prescriptions stemming from Amazon Clinic. But customers will be able to choose other pharmacies as well. The increased volume for Amazon Pharmacy probably won't be large, especially in the early innings for Amazon Clinic.

Amazon did say that its healthcare services will be eligible for flexible spending accounts (FSAs) and health savings accounts (HSAs). However, not accepting insurance will almost certainly get in the way of Amazon Clinic making a big impact on the company financially. 

Two different questions

Is Amazon stock a buy because of its new healthcare service? No. The impact of Amazon Clinic probably won't be great enough to influence investors' buying decisions. However, whether Amazon stock is a buy at all is a different question. I think that the answer to this second question is a resounding yes.

Amazon still has significant growth opportunities. The latest indication that inflation could be moderating should be great news for the company. Lower inflation would benefit Amazon's e-commerce business as well as its Amazon Web Services cloud hosting unit.            

The stock has fallen the most from its peak since the Great Recession. History shows that when Amazon experiences a steep decline, it roars back.

Amazon Clinic could eventually be a huge success. But even if it isn't, the virtual care service highlights Amazon's ability to expand into new markets. Sometimes the company will win with these moves and sometimes it won't. However, stocks with as many potential ways to generate growth as Amazon tend to perform really well over the long term. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Keith Speights has positions in Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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