- Tom Forte, a senior research analyst at D.A. Davidson, told Bloomberg on Tuesday that Amazon’s digital pharmacy could be a “trillion-dollar, global opportunity” for the e-commerce giant.
- He added that Amazon needs an opportunity like this to sustain its current levels of growth and multiples.
- Forte also said that Amazon’s foray into the pharmaceutical industry will bring more profits to the company than its entrance into the grocery market when it acquired Whole Foods.
- “Grocery is not a high-margin category, I would say that expectations of Whole Foods generating materially higher margins were overly optimistic, the case for pharmacy is different though,” Forte said.
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Amazon’s digital pharmacy could be a trillion-dollar global opportunity for the e-commerce giant, and could bring in noticeably more profit than previous acquisitions, according to D.A. Davidson’s Tom Forte.
“My question for Amazon is ‘What took you so long?’ I think this is a great move by Amazon,” the senior research analyst told Bloomberg Surveillance on Tuesday.
He added that a company like Amazon, that currently has a market capitalisation of over $US1.5 trillion, a price-to-earnings ratio of 184.62, and a share price up 71% year-to-date, needs to make deals like this to sustain its growth.
“Amazon needs these large global trillion dollar opportunities to sustain their growth and their multiple,” Forte said.
Forte also said that Amazon’s foray into the pharmaceutical industry will bring more profits to the company than it’s acquisition of Whole Foods, which some on Wall Street argue hasn’t made that much money for Amazon.
“Grocery is not a high-margin category, I would say that expectations of Whole Foods generating materially higher margins were overly optimistic, the case for pharmacy is different though,” Forte said.
“I think of Amazon as having the potential for 20% adjusted EBITDA margin long-term,” said the analyst. “Pharmacy I think confidently will bring more than a 10% adjusted EBITDA margin.”
Amazon has ventured into various subsectors of healthcare over the last few years. In 2018, Amazon acquired PillPack. In 2020, the company opened up health clinics for employees. Now that Amazon will be selling prescription medicine online, Forte said Amazon’s collective healthcare efforts will noticeably increase its revenue.
Shares of other pharmaceutical companies like CVS, Walgreens, and Rite-Aid sank on the news of Amazon Pharmacy, sparking fears that the entire industry will see deep losses after being “Amazon’d.” Forte said it’s unlikely however, that any new tech antitrust regulation from a Democratic administration will harm the digital pharmacy.
“From an anticompetitive standpoint it’s hard for me to imagine that they could prove that this is bad for the consumer and that this raises costs for the pharmacies.”
In a press release for Amazon Pharmacy the company said that Prime members can save up to 80% off generic and 40% off brand name medications when paying without insurance.
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