InvestorPlace - Stock Market News, Stock Advice & Trading Tips
News this week that drugstore chain Walgreens Boots Alliance (NASDAQ: WBA ) and software behemoth Microsoft (NASDAQ: MSFT ) are teaming up to inject some fresh tech into Walgreens stores brought cheers from investors. WBA stock holders were pleased, to be sure, knowing too well that the company hasn't kept up with rivals' business-building partnership development.
Yet, as the celebration winds down, tough questions are starting to surface. Chief among them is, how exactly will this WBA-MSFT alliance bolster the bottom line? A close-second (and related) question is: how exactly will this partnership change the way consumers receive care?
Maybe good answers will come in time, but as it stands right now, there are no answers at all.
Just Another Partnership?
The short version of a long story: Health care's a mess in America. Aside from being too expensive for consumers and too inefficient for all players, it's also often ineffective. The federal government has thus far been powerless to get a grip on any of those challenges.
That's largely why we've seen a wave of M&A within the industry over the past several years - players are doing what they can just to survive and still give decent care.
That deal-making took on a whole new tone a year ago, however, when Amazon.com (NASDAQ: AMZN ), JPMorgan Chase (NYSE: JPM ) and Berkshire Hathaway (NYSE: BRK.A , NYSE: BRK.B ) teamed up to develop their own kind of health care organization .
The aim of this venture isn't to drive profits. The three organizations are partnering primarily to cull their own realized costs of providing health benefits for their employees. Nevertheless, the creation of an in-house solution was also an unspoken message that the nation's health care industry was no longer capable of doing what it should be able to do.
Other less-shocking partnerships sent a similar message. CVS Health (NYSE: CVS ) now owns insurer Aetna, crossing a line not all consumers/patients are sure they want crossed . Meanwhile, Humana (NYSE: HUM ) and CVS have forged an alliance, of sorts . In fact, Aetna and Humana would now be the same company had the Justice department not put the kibosh on the deal.
In that light, the Walgreens-Microsoft partnership looks and feels like the next natural progression of the industry. Owners of Walgreens stock, however, may want to take a closer look at the deal… not so much at what was said, but wasn't said.
No Clear Plan For 7-Year Deal
The precise plans for the team-up shouldn't be - and arguably can't be - disclosed, as it's unlikely even the companies themselves know what this seven-year deal will lead to seven years from now.
Still, one would expect at least a bit more clarity on how the development will boost business.
The key tenets of the deal include the use of Microsoft's office-productivity software by Walgreens employees, making self-care options available to patients (presumably through an app), and the reduction of friction between payers and providers. Some Walgreens stores will also, as a pilot program, dedicate floor space to sales of medical hardware and devices that (again, presumably) make the most out of the other improvements at-hand.
It all sounds compelling. A second glance at the announcement, however, also reads like little more than a marketing brochure. The partnership's goals are also the same as those that every other player in the health care arena hopes to achieve.
The question then becomes, how are Walgreens and Microsoft going to differentiate what they're going to do from the drug store operator's competitors? It's easy to say the aim is making self-care and prescriptions a seamless experience. Far more difficult is convincing consumers to use such a tool, and then teaching them to use it. Constant changes to health insurance policies only exacerbate the confusion that patients may not be able to address themselves, and Microsoft's role in Walgreens' push of new medical devices is fuzzy at best.
Candidly, too, the deal also comes across a little bit desperate.
Walgreens CEO Stefano Pessina initially said he wasn't worried about Amazon's 2018 acquisition of online pharmacy PillPack . "This partnership with Microsoft suggests otherwise," said drug supply chain expert Stephen Buck on Tuesday. Making deals from a have-to position is starkly different than want-to deals.
And there's the rub. At this point, with most of the best potential partnerships already off the table, Walgreens' interest is in partnerships without an entirely clear purpose or meaningful plan.
CVS wanted Aetna for obvious reasons, but also for less obvious reasons like leveraging CVS's pharmacy benefits management wing and using existing stores to build out a network of mini-clinics that will ultimately lower costs for all. Amazon, Berkshire and JPMorgan are just trying to save money. Cigna Holding (NYSE: CI ) wanted Express Scripts so it could also gain control of its costs by controlling a pharmacy benefits manager .
In contrast, the Microsoft partnership with Walgreens (as impressive as some of the technology rollouts may end up being) doesn't look like it will accomplish anything that Walgreens couldn't achieve with several other tech companies… whatever it ends up accomplishing.
Bottom Line for Walgreens Stock
Don't misread the message. The alliance isn't an ill-advised decision, nor will it end up crimping the value of WBA stock. Indeed, the two organizations may have something game-changing in mind that can't yet be divulged.
It's more likely than not , however, that the team-up is no more and no less than it currently seems to be on the surface. That is, a modernization of the Walgreens IT infrastructure. It's a smart and necessary step, but it's not the game-changer the stores need if WBA aims to prevent more team-ups like the Amazon/Berkshire/JPMorgan partnership and CVS's in-house clinics from siphoning away customers.
In that light, the far-less-touted work Walgreens is doing with Google's life-sciences arm Verily - to better manage chronic illnesses - offers more promise for real revenue creation.
Even then though, it may not be enough to light a fire under WBA stock anytime soon. Edward Jones analyst John Boylan noted last month , before the Microsoft team-up was unveiled, "Many of these partnerships are still in their very early stages, and we would like to see if these services will have a notable impact on growth and profitability, and if its cost cutting efforts will counteract the continuing reimbursement pressure we are seeing in the drugstore market."
Walgreens still needs something big, above and beyond the acquisition of rivals' stores, and it needs it sooner rather than later.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter , at @jbrumley.
More From InvestorPlaceCompare Brokers
The post Walgreens, Already Late to the Party, Arrives Empty-Handed appeared first on InvestorPlace .