Is GDRX Stock A Buy?

GoodRx is US-based healthcare technology provider offering platform solutions across four fundamental verticals: prescriptions (GoodRx), subscriptions (GoodRx Gold), pharmaceutical manufacturer solutions (GoodRx), and tele-medicine (HeyDoctor).

Co-founder and Co-Chief Executive Doug Hirsch aims to “fix America’s broken healthcare system” by developing the leading consumer-oriented digital healthcare provider in the United States. 

GoodRx 10,000 Foot View

GoodRx is establishing a single access point healthcare system that brings together multiple constituents – including patients, healthcare professionals and pharmaceutical dispensers – and intends on delivering quality and value to all involved.

The primary driver, it claims, will be customer empowerment through greater transparency, cost savings, and convenience.

For those companies involved in the delivery of healthcare and pharmaceutical services, GoodRx aims to increase sales through connecting the right sellers with the right customers, by matching high-intent users with the most appropriate provider.

GoodRx Market Opportunity Is Massive

According to the Centers for Medicare and Medicaid Services, total spending on healthcare in the US is somewhere around the $4 trillion mark per year. This is significantly higher than for any other consumer market.

Furthermore, costs associated with US drug expenditure are the highest anywhere in the world.

In its first quarterly report, GoodRx estimates that from this expenditure, it can derive a total addressable market for the company in the region of $800 billion. 

GDRX Is Cash Flow Positive & Growing Fast 

GoodRx only went public with its IPO in September 2020. And unlike many IPOs in the tech and biotech space, it is already a money-making enterprise at this relatively early stage.

The company has grown its monthly active users at a rate of 59% CAGR between 2016 to 2019, and boasts revenue increases of 57% CAGR from $99 million in 2016, to $388 million in 2019.

Its cash flow is net positive, and there is nothing alarming in its modest debt balance.

Encouragingly, GoodRx beat on analysts’ EPS (+$0.09) and Revenue (+$5.4 million) expectations in its latest earnings disclosure. Those same analyst revision trends are also upbeat, with 73% of The Street revising upwards, and only 27% revising down.

On a comparative note in the healthcare technology sector, and specifically those companies specializing in healthcare information, GoodRx’s closest rival with a similar market cap would be the Cerner Corporation (CERN).

A brief look shows that CERN has had negative year-on-year growth of late, but it beats on revenue per share. This is less surprising given that CERN’s profits are far larger at this point in time, at $4.8 billion vs. GoodRx’s $490 million.

However, GoodRx is still in its growth phase, posting profits, and with a price-to-sales of 41x, still has plenty of room to maneuver in the future.

Will Amazon Step On GoodRx Market Share?

The primary risk stalking GoodRx’s business model is the threat from negative regulatory developments.

GoodRx is pinning its entire operation on one assumption: that the tailwinds from political and secular trends toward ever-decreasingly healthcare and pharmaceutical costs will continue. But this is by no means a given, and, ultimately, highly dependent on political will – which is nothing if not fickle.

Perhaps a more worrying situation might unfold in the future with the arrival of the likes of Amazon and Apple onto the healthcare scene. Indeed, GoodRx’s stock fell 20% in November 2020 to an all-time low, on news that Amazon had plans to develop its own online pharmacy business.

The launch of Amazon Pharmacy doesn’t constitute a strict rival to GoodRx’s business, as GoodRx is first-and-foremost a price comparison website. In contrast, Amazon Pharmacy is essentially a prescription and drugs shipping service.

That said, the market sentiment inferred that Amazon’s play into the space was not a good omen for GoodRx. This might well be because Amazon has a second offering in the works: Amazon PrimeRx.

This is far closer to GoodRx’s own business, in which Amazon will offer significant reductions on brand and generic pharmaceuticals to those who are not already covered by insurance.

However, it could well be that Amazon becomes a threat to other retail pharmacies – which GoodRx is not – and instead offers a complementary opportunity to GoodRx as Amazon Pharmacy may become an integrated partner within the GoodRx ecosystem.

Analysts at Credit Suisse have even suggested that Amazon’s entry into the online pharmacy space will be a boon for GoodRx – and just in terms of its synergistic potential. They predict that many PBMs (Pharmacy Benefit Managers) will not want to work with Amazon, and will instead further their partnership status with GoodRx.

The Bottom Line: Is GoodRx A Buy?

GoodRx isn’t just tackling a technological problem, it’s tackling a social and political one too. Issues surrounding healthcare costs have come to dominate the party political scene for years now, and there’s a sense that the secular winds are firmly in the direction of reducing costs as much as they are about opening up consumer choice.

Poised to capitalize on these trends, GoodRx is well positioned to become the main player in the space. The company’s stated mission objective is to “Help Americans get the healthcare they need at a price they can afford”.

It believes that healthcare in the US is at a critical juncture and envisions that the solutions the company is developing will give it first mover advantage in the field. Along with its strategic partnerships and competitive moat, the firm hopes to leverage its high-growth potential with a scalable business model to become the No 1 provider in the near future.

Given GoodRx’s healthy financial position, its potential synergies with Amazon, and its optimistic and ambitious outlook, GoodRx is a buy right now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.