Just What the GoodRx Doctor Ordered - The Average Joe

Just What the GoodRx Doctor Ordered

October 1, 2020

Here’s something you don’t see every day: A high growth business going public in 2020 that is actually generating profit. GoodRx ($GDRX), an online drug prescription marketplace, went public on Sept. 23. Founded in 2011, the company was built to tackle one of America’s largest problems, expensive and opaque healthcare. Up until its IPO, the company has raised a total of $101.5m, a relatively small sum compared to other tech companies, to build an $18b business… Talk about being efficient.

The backward US healthcare industry

Pricing for prescription drugs in the US is extremely opaque. Americans can walk into different pharmacies and be quoted completely different prices — pricing is so inconsistent that a consumer can pay more for a prescription with insurance than without. Americans spend twice as much per capita on healthcare compared to other developed countries. GoodRx wants to change all of that. The company gathers data from over 70,000 pharmacies and offers discount coupons for prescriptions. GoodRx profits by receiving a fee for each coupon used.

Is that… Profit?

One thing you don’t see every day in a company going public… Profitability. GoodRx has been making money since 2016, something that most publicly traded tech companies struggled to do. What’s even more impressive is their net income grew 75% from last year. That’s faster than their revenue growth. GoodRx must have one of the most impressive financials of any companies that have IPO’d in 2020. While most companies are bleeding cash, GoodRx can’t spend their cash fast enough.

(Refresher: What is an IPO?)

Comin’ after you, Teladoc

In Sept. 2019, GoodRx acquired HeyDoctor, an online platform for virtual doctor visits, to expand into the telehealth space. By acquiring HeyDoctor, GoodRx can now connect its customers to virtual doctors and fill their prescription afterward — GoodRx is expected to generate $20 per virtual visit.

Telehealth is a massive $26.4b market but it is also more competitive with lower profit margins. The most well-known company in the telehealth space is Teladoc Health ($TDOC), which provides virtual doctor visits. Teledoc’s stock increased over 3x in 2020 from increased demand for virtual healthcare. GoodRx’s acquisition puts it in direct competition with Teladoc.

  • Teladoc’s gross margins in 2019 were 69.1% vs GoodRx’s 95%.
  • Teladoc lost close to $100m in 2019 while GoodRx made $54m in profits.

Meaning… GoodRx is in a much more profitable industry. Its expansion into telehealth could harm the company’s profit margins in the long run. So why make the move? The telehealth industry is expected to grow 17.7% annually over the next 5 years and GoodRx wants a piece of the growth. The expansion also lowers their risk by spreading out their revenue sources.

Show me the numbers

Fast growth, profitable business doing right by the people. Is it too good to be true? Let’s dig into the numbers:

  • How fast? Revenue grew 57% annually since 2016. GoodRx grew at a slightly lower rate of 48% in the first 6 months of 2020 compared to the first 6 months of 2019. The company will be looking to its acquisition of HeyDoctor to maintain growth.
  • How much? On Sept. 24, the company was valued at ~$18b which gives the company a price-to-earnings multiple of 272x and price-to-sales multiple of 46x. These are very high numbers which may suggest that the company is overpriced.
  • How profitable? At a 17% profit margin, GoodRx is comfortably generating enough cash to finance their business. The company earned $54m in profits in the first 6 months of 2020, nearly more than the $66m it generated in all of 2019.
  • How big is the market? GoodRX is going after three massive markets: $524b prescription market, $30b pharmaceutical manufacturer solutions and the $250b telehealth industry.

The verdict: Wait for the dust to settle

Unlike other tech companies that have recently gone public, GoodRx offers a rare opportunity to invest in a high growth, profitable tech company. For GoodRx to live up to their high valuations, the company will have to continue growing at a fast pace while maintaining their profit margins. Given the current risks in the market (i.e. election, negative sentiment on tech stocks, COVID), it may be better to hold off — Investors may get a better opportunity to invest in GoodRx at a better price.

Pro Tip: It may be a good idea to wait 4-7 months after a company goes public to invest. Pre-IPO investors are often prevented from selling their stock for 180 days after the IPO. Once this lockup period expires, many of the investors who sell will drag stock prices down.

Investing trends and news sent to your inbox twice a week

The 5-minute newsletter that brings you new investment ideas and trends in a bite-sized format