Should Teladoc Shareholders Be Worried About Amazon?

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Amazon ( AMZN -2.73% ) has been slowly growing its presence in healthcare. In 2018, it acquired PillPack, a business that pre-sorts medications and delivers them to customers’ homes. Since then, it has launched Amazon Pharmacy and Amazon Care. Last month, it also announced that it would be rolling out its telehealth service nationwide.

For Teladoc Health ( TDOC -4.58% ), that means another rival to contend with — and given its size and incredibly vast reach, Amazon could be much more of a headache than its smaller competitors. Should investors in Teladoc be worried?

Image source: Getty Images.

Amazon to offer both in-person and virtual-care services

On Feb. 8, Amazon announced plans to expand Amazon Care, a hybrid service that includes both in-person services and virtual care, saying that it is seeing “growing demand” for its healthcare options. Amazon Care’s virtual services are now available across the country, and management says that it will add in-person care services in 20 new cities this year, (up from the current eight), including major markets such as New York and Chicago.

Teladoc shouldn’t worry about Amazon, at least not yet

It can be a bit intimidating for any company to learn that Amazon is encroaching on its territory. But for Teladoc, there shouldn’t be any alarm bells going off just yet. 

While Amazon says it has a high satisfaction rating of 4.7/5 for Amazon Care, that may not be all that useful of a metric given that the service is still in its early stages. And while Amazon does say that more customers are signing up, it isn’t providing firm numbers. It also sounds less impressive when the company includes Whole Foods, one of its subsidiaries, as an example of a “new customer” that is making Amazon Care’s services available to its employees. If Amazon had bagged a top company as a client for this service, surely it would have highlighted that fact in the release rather than touting a deal with a business that it owns.

The proof simply isn’t there yet that Amazon Care is winning over significant numbers of customers. A year ago, Amazon announced that the service would be available to other companies based in Washington state. And although that’s not a huge part of the country, Amazon has had time since then to promote the service in that market — apparently without much to show for the effort thus far. Although that can certainly change, there’s no guarantee that it will.

Amazon and other highly profitable tech giants can afford to spend money on new initiatives without making those moves top priorities. A good example is grocery chain Whole Foods, which Amazon acquired in 2017. Though some feared at the time that the deal foreshadowed Amazon taking over the grocery industry, that simply hasn’t happened. In 2022, Amazon reported a whopping $469.8 billion in revenue and in its full-year earnings report, “Whole Foods” was referenced just two times. It is included in the company’s physical stores segment, which at $17.1 billion, made up less than 4% of its top line.

If the company doesn’t have much to show for its Whole Foods acquisition after nearly five years, I’m inclined to believe that its foray into the healthcare industry may not be all that threatening for Teladoc. Perhaps it’s just another effort on the part of Amazon to further diversify its business.

Is Teladoc the best option for investing in telehealth?

Teladoc isn’t short on competition in its niche. But time and time again, it has proven to be more than capable of generating strong numbers. It’s coming off a strong fourth quarter in which virtual visits rose by 41% year over year to a record high of 4.4 million, and management still believes there’s more room for growth. This year, it expects its U.S. paid memberships to rise to a range of 54 million to 56 million.

Not only does the company have a big head start on Amazon, but it too has earned high customer satisfaction scores, which could explain why — despite competition from the likes of American WellCVS Health, and Cigna Health, among others — it continues to post strong results. 

Teladoc’s financials are improving, and with the stock recently coming off a new 52-week low, it may be one of the best growth stocks to buy right now. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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