With the PillPack deal, which is reported to be worth around $1 billion, Amazon has spent almost $2 billion on acquisitions in the first six months of this year, after buying Ring for $900 million in February. It’s the first time in Amazon’s 24-year history that it’s spent more than $1 billion on deals in consecutive years, after the $13.7 billion Whole Foods acquisition in 2017.
Billion-dollar transactions aren’t foreign to Amazon — it acquired Zappos for $1.2 billion in 2009 and shelled out almost $1 billion for Twitch in 2014. But until recently, that kind of big spending was sporadic, certainly relative to other large tech companies like Microsoft, Facebook, Google and Salesforce. Amazon CEO Jeff Bezos has tended to prefer developing projects in-house.
“Amazon’s historic M&A strategy has been to build first and buy second,” said Tom Forte, an analyst at D.A. Davidson who has a buy rating on the stock. “What has changed, which may be influencing its strategy today, is the size of the company [it’s buying].”
According to CB Insights, Amazon bought 10 start-ups in 2017, its most active year on record. Those purchases were for companies in cybersecurity, game development, home security cameras and Souq.com, an e-commerce company in the Middle East.
Forte said the change may be influenced by Amazon’s need to maintain its growth rate after its stock price surge has turned it into the world’s second most valuable publicly traded company. As a result, he said, Amazon is pulling the trigger on acquisitions faster than in the past, and entering new areas where it hasn’t had a strong presence.
“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” said Jeff Wilke, Amazon’s CEO of Worldwide Consumer, in Thursday’s statement.
The stepped-up pace of dealmaking is forcing Amazon to contend with integration issues and could lead to culture clashes. We’ve already seen a good deal of that with Whole Foods.
But given the scale of Amazon, which had roughly $25 billion in cash as of last quarter, and its history of running small teams separately, the benefits of these deals far outweigh the risks, said Aaron Kessler, an analyst at Raymond James.
“While Amazon could have grown organically, we believe it was able to significantly speed up its time to market through M&A,” said Kessler, who recommends buying Amazon shares.
PillPack generated about $100 million in revenue last year. That’s not big enough to move the needle for Amazon, which reported almost $180 billion in sales.
Still, the PillPack deal could help Amazon expand its target market and reach older populations. PillPack’s chief marketing officer previously said its core customers are in their late 40s and early 50s, while more than half of Amazon’s users are between the ages of 19 and 44, according to a Goldman Sachs report last year.
The transaction should give Amazon “greater reach and insight into the 55+ year old consumer cohort,” Ed Yruma, an analyst at Keybanc Capital Markets, wrote in a note Thursday.