Here’s Why Amazon Might Enter The Pharmacy Market

+13.47%
Upside
180
Market
205
Trefis
AMZN: Amazon logo
AMZN
Amazon

Reports suggest that Amazon (NASDAQ:AMZN) is now getting serious about the pharmacy business and is likely to move into the space in future.  The company already sells medical supplies and equipment in the U.S. and is now hiring executives more broadly to venture into the pharmacy segment. These reports come a few months after Wal-Mart upgraded its mobile app to make it more convenient for customers to order prescription medicines and pick them up from stores. Healthcare spending in the U.S. is expected to increase by 5.8% annually through 2024 as insurance coverage improves, the population continues to age and the economy improves. Healthcare is estimated to be a $3 trillion sector, and the pharmacy space could be a multibillion dollar market for Amazon. While CVS and Walgreens hold a large share of the U.S. pharmacy market, the convenience offered by an e-commerce company could lure customers. With that said, Wal-Mart is looking to offer similar convenience through its mobile app, and the segment may not be a smooth sail for Amazon given the existing strong players.

Strong Revenue Stream

Several analysts believe that disruption of the pharmacy market might be difficult for Amazon in the near term, given that the older section of the population prefers buying their medicines from a retail store, rather than getting them via mail. Further, it might be tough for Amazon to get higher discounts on drugs compared to the existing players. However, given Amazon’s deep pockets, the company can price its drugs competitively by dealing directly with manufacturers and negotiating discounts. This should give it an edge over other players and help the company grab a share of the market. The convenience of ordering drugs via an Amazon account should also attract its Prime members towards and help the company start with a strong user base. According to Stephen Buck, co founder of GoodRx, a service for cost conscious prescription drug consumers, Amazon could ultimately capture around $25 to $50 billion of the $300 billion prescription drug market in the U.S. This estimate would put a pharmacy business at around 14% of Amazon’s estimated revenues of $170 billion in 2017.

Relevant Articles
  1. Up More Than 100% Since The Start Of 2023, Where Is Amazon Stock Headed?
  2. Amazon Stock Outperformed The Q3 Estimates, What’s Next?
  3. Amazon Stock Is Up 50% YTD, Can It Top The Estimates In Q3?
  4. Amazon Stock Surpassed The Street Expectations In Q2
  5. Amazon Stock Is Undervalued
  6. Amazon Stock To Beat The Consensus In Q1

We believe the pharmacy market holds strong potential for Amazon. While the segment is competitive and Amazon might not be able to fully disrupt the market, it could still grab a significant market share, driving revenues in the long term.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research