The stock of Amazon (NASDAQ: AMZN) has toppled 20.6% since the start of 2022 in a broader tech sell-off as a response to persistently high inflation and the Fed’s interest rate hikes to control it. In recent years, the company has branched out into other businesses apart from e-commerce. One area in particular that the company has been making a lot of noise in of late is healthcare.
Launched in 2019, its Amazon Care segment provides immediate access to a vast array of urgent and primary-care services. Currently, its virtual health services are available nationwide, and it plans to roll out in-person services in more than 20 major U.S. cities throughout 2022.
In late July, the company announced its plan to acquire One Medical, a subsidiary of 1life Healthcare (NASDAQ: ONEM), in an all-cash transaction. If approved, the acquisition will be a milestone in Amazon’s journey to becoming a leader in the healthcare arena.
Let’s examine the terms of the deal and what it means for the tech company’s investors.
The ins and outs of the deal
In a press release on July 21, Amazon announced its agreement with One Medical to acquire the healthcare company for $18 a share in an all-cash transaction worth roughly $3.9 billion. One Medical is a membership-based primary care service with 200 locations and 767,000 patients nationwide; the company also provides 24/7 access to virtual care. And it has a portfolio of more than 8,000 employer clients, working directly with businesses to provide health benefits to their employees.
In its opening quarter of 2022, One Medical grew net revenue by 109% year over year to $254.1 million, all while expanding its customer base by 28.3%. Growth remains robust, but the company is still unprofitable, reporting a net operating loss of $92.6 million in the first quarter.
Amazon, with $37.5 billion in cash and cash equivalents, has the funding to help expedite the company’s journey to profitability. Regarding the acquisition, Neil Lindsay, senior vice president for Amazon Health Services, said that the e-commerce platform is on a mission to “dramatically improve the healthcare experience over the next several years.”
If approved, the acquisition of One Medical would be a huge step in Amazon’s quest to increase its exposure to the healthcare industry. The company, which grew total sales in its second quarter by 7.2% to $121.2 billion and delivered a net loss of $0.20 per share, has been rapidly broadening its empire in recent years. And given its one-of-a-kind network and the huge upside of the global healthcare market, the company’s decision to buy One Medical could lead to fortunes down the road.
What should investors make of the acquisition?
If you’re excited about Amazon’s expansion into the healthcare arena, then you should be delighted by the move to acquire One Medical. Although the acquisition target is unprofitable, Amazon’s abundant resources — such as its $37.5 billion cash position as of the second quarter — will likely help accelerate growth.
If approved, the acquisition will be a shortcut for Amazon, which is aggressively trying to enter the fiercely competitive $4.1 trillion healthcare industry. I support the company’s decision for now. It just might be the bold move that Amazon needs to establish itself as a dominant player in the healthcare space.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Luke Meindl has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.