Prediction: This Will Be Amazon's Next Big Acquisition

Amazon (NASDAQ: AMZN) is primarily known for its e-commerce marketplace and cloud computing infrastructure business. But believe it or not, Amazon also operates within several other end markets including streaming, entertainment, advertising, and more.

One way that Amazon has been able to diversify its business over the years is through a series of acquisitions. While the majority of Amazon's buyouts have revolved around the technology sector, the company has made some quiet moves in the healthcare space in recent years.

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In 2018, Amazon acquired online pharmacy business PillPack for $753 million. Moreover, the company acquired membership-based primary healthcare provider 1Life Healthcare for $3.9 billion in 2023.

These two companies have helped Amazon spearhead its healthcare services, primarily through Amazon Pharmacy. Below, I'm going to break down which company I think Amazon could acquire next and explain why I think the deal makes a lot of sense right now.

Amazon should acquire Hims & Hers Health

Hims & Hers Health (NYSE: HIMS) is a telemedicine company that specializes in providing a number of lifestyle and wellness products, including treatments for skincare, hair growth, weight loss, anxiety, sexual health, and more.

Back in November, Amazon Pharmacy announced that it was expanding its product offerings to include "common health, beauty, and lifestyle concerns" such as anti-aging skincare, hair regrowth, and erectile dysfunction.

Right off the bat, I see a lot of overlap between the Hims & Hers platform and Amazon's bolstered offerings through its online pharmacy. Below, I'll dig into what makes Hims & Hers a particularly attractive asset for Amazon's ecosystem.

Image source: Getty Images.

Why Hims & Hers Health and Amazon could be a match made in heaven

Per the chart below, investors can see that the overwhelming majority of revenue for Hims & Hers Health comes from online. And according to the company's 10Q filing, "the majority of our online revenue is subscription-based, where customers agree to be billed on a recurring basis to have products and services automatically delivered to them."

Image source: Hims & Hers investor relations.

The reason I see Hims & Hers Health as such an attractive asset for Amazon comes down to one thing: Amazon Prime, the subscription service that offers members a host of benefits such as free shipping and access to certain entertainment content through the company's streaming platform.

As I referenced above, two of Amazon's major healthcare-related acquisitions in recent years include PillPack and 1Life Healthcare. 1Life Healthcare is an exclusive perk for Prime members, while PillPack and Amazon Pharmacy as a whole are tailored more toward Prime subscribers (although you technically do not need to be a Prime member to access some of Amazon Pharmacy's offerings).

I think the obvious synergy opportunity here is for Amazon to roll up Hims & Hers Health's subscriber base into the Prime membership platform -- thereby bolstering its online pharmacy capabilities even further and adding a steady stream of high-margin, recurring revenue in the process.

Now looks like the opportunity to get a deal done

Hims & Hers Health is an interesting case study. Although shares have soared by 216% this year, the stock is actually down by nearly 13% just in December.

HIMS data by YCharts

One of the bigger trends influencing recent price action for Hims & Hers Health stems from the weight loss market. Right now, glucagon-like peptide-1 (GLP-1) agonists such as Ozempic, Wegovy, Mounjaro, and Zepbound are used to treat diabetes and chronic weight management. All four of these blockbuster drugs are made by either Novo Nordisk or Eli Lilly.

While competition in the GLP-1 landscape is sparse, Hims & Hers has been able to find its own unique pocket by offering patients compounded versions of treatments such as Ozempic. Compounded medications are not approved by the Food and Drug Administration (FDA), yet some patients will opt for these knockoffs purely due to their low cost and ease of access.

For months now, Novo and Lilly have made public comments about compounded GLP-1 treatments and have been making moves of their own to try to make their weight loss medications more affordable and easier to access.

Furthermore, just this week the FDA removed tirzepatide -- the main ingredient in Mounjaro and Zepbound -- from its shortage list. This means that compounding facilities have a limited time (60 to 90 days depending on certain regulatory frameworks) to continue selling compounded GLP-1s. Once this stops, Hims & Hers will likely have a much tougher time penetrating the weight loss market, and its growth could slow down materially.

To me, these developments are directly contributing to the current sell-off in Hims & Hers Health stock. With a market capitalization of $6.2 billion, Amazon could easily acquire Hims & Hers Health with cash from the balance sheet.

Given the overlap of product offerings between Amazon Pharmacy and Hims & Hers Health, combined with the robust recurring revenue base that Amazon could roll into its Prime membership perks, I see a deal between the two parties as a match made in heaven.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Amazon, Eli Lilly, and Novo Nordisk. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.