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Amazon's new pharmacy deal ruined a perfectly good earnings report for Walgreens

Jun 28, 2018, 22:22 IST

The exterior of the Walgreens store in Times Square.Reuters

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Thursday started off with a bang for Walgreens shareholders.

When the company reported quarterly earnings at 7 a.m. ET, investors apparently liked what they saw, and the stock rallied as much as 1.5%. They were likely enticed by the $10 billion buyback authorized by Walgreens, as well as a reported jump in prescription sales.

The good times in the pre-market lasted less than 90 minutes, unfortunately, thanks to Amazon's latest foray into a non-core industry. When the Jeff Bezos-led juggernaut announced it would buy PillPack, an online pharmacy, Walgreens shares dropped immediately. They're now trading about 10% lower on the day.

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Investors in Walgreens weren't alone. The damage was felt all along the pharmacy supply chain, with the likes of CVS, Rite Aid, Cardinal Health, AmerisourceBergen, McKesson, and Express Scripts all dropping on the news.

On a broader basis, the pharmacy space is just the latest area to feel the disruptive force of Amazon. Industries ranging from grocery stores to athletic-apparel retailers to package-delivery services have also, in the past year, seen billions in market value erased by a single Amazon announcement.

If Walgreens' stock is to recover, it'll have to contend with Amazon's vision for healthcare, which is increasingly coming into focus. Once the deal closes, Amazon could potentially start selling prescription drugs directly through its site, delivering them via mail and impacting retail pharmacies.

That's bad news for Walgreens.

After Thursday's losses, Walgreens is trading 18% lower for the year.

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