There are plenty of organizations that could go from being dead money for investors to operational powerhouses. GoodRx Holding Inc. (GDRX, Financial) might be one of those companies. Its share price is down 90% since its debut in 2020, giving investors a big long-term opportunity.
About GoodRx
Headquartered in Santa Monica, California, GoodRx is a digital health care platform that helps consumers lower costs for prescription drugs.
With over 6 million active monthly users, the company primarily focuses on the U.S. drug market using a proprietary price comparison tool that aggregates pricing data from over 200 billion data points, enabling consumers to access coupons negotiated between pharmacies and intermediaries such as pharmacy benefit managers. The company captures a small share of the fees paid by pharmacies to PBMs in exchange for routing consumers to these discounts, and through a subscription-based model called GoodRx Gold. This service offers customers discounted drugs for a monthly fee.
Financials
Since 2018, GoodRx has grown its revenue by 26% year over year, going from $250 million in sales to nearly $800 million. Even better are the gross margins, which stand at an incredible 92%, meaning the company generates nearly $1 million in gross profit per employee. However, the company also spends a lot of money on sales and marketing, with over 50% of gross profit going to that category. The good news is that number seems to stabilize at a certain level and is actually lower than 2020 and 2021 spending. Long term, these numbers could stabilize as revenue grows since the acquisition cost of a new customer would not increase with better brand recognition - it will not take as much marketing spend to bring in new members.
On the balance sheet there is a healthy amount of net current assets, with $729 million in cash easily covering the $652 million in long-term debt. Yet, since the company has no retained earnings, book value is stagnant and interest expense is much higher than interest income.
On the cash flow side, it does well to keep capital expenditures lower. Where GoodRx seems to waste money is on the operating expenses side. For a company that generates over $1 million per employee, to spend 70% of its gross profit on selling and other general expenses leads me to believe there could be some wasted efficiency. At the same time, GoodRx spends nearly 20% of its gross profit on research and development. This is essentially a broker for better prices on drugs. I do not know if the company is working on some new health care product, but almost all of the R&D spending could be cut and pushed to operating income. 

Competition
Outside of the big retail competitors, GoodRx has many smaller upstarts like itself all with very similar websites and offerings. SingleCare, WellRx and InsideRx seem to be the best alternatives, but none of these have been able to match the scale of active users that GoodRx has achieved.
That said, two big names have recently entered the discount pharmacy space, both with massive networks of established users. Amazon.com Inc. (AMZN, Financial) with its newly announced RxPass and Optum Rx, the pharmacy services segment of UnitedHealth Group (UNH, Financial). Optum launched a drug price comparison tool to allow its members to get the lowest prices for generic drugs. The Price Edge option has been activated for more than 1.5 million of Optum Rx members, and could add another 400,000 members by March 1.
Collectively, UnitedHealth serves nearly 46 million members; however, the OptumRx site is arguably horrible and it is not necessarily the most trustworthy aspect of an insurance provider, which should already be trying to lower your prescription drug costs. Everyone wants lower costs on pharmaceuticals, and that is why GoodRx is in a good position to continue dominating this segment of the industry.
As for Amazon, the company has over 200 million Prime members and is spending billions to enter the health care space, buying One Medical for $3.9 billion and PillPack for $750 million a couple years prior. The RxPass is offered to Prime members at $5 per month, 50% lower than GoodRx Gold, but with the advantage of free delivery.
Valuation
GoodRx could be profitable in 2023 and is currently priced north of three times its sales, book and cash values. It also generates a healthy $164 million in cash from operations. If more of its gross profit were to be pushed down to Ebitda, GoodRx would be a very desirable investment.
With that in mind, it is hard to forecast how consistent the company will be in the years ahead. What is definite is that right now GoodRx is a force in the health care industry.
The company is going to report full-year numbers at the end of the month and it will be telling to learn what management thinks about the new, bigger competitors. From a usability standpoint, GoodRx is head and shoulders above the others in my opinion. Being the everything store is not always the best path. While there may be cross-selling opportunities, the beauty of GoodRx is that it helps consumers focus on exactly what they need and nothing more. This is key as the total addressable market for prescription drugs is over $500 billion and growing.
The fact GoodRx has an enterprise value just over $2 billion makes it look like a ridiculous bargain.
