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Why GoodRx Holdings Stock Got Crushed Today

By Jon Quast - Mar 12, 2021 at 11:14AM

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Revenue was ahead of expectations, but investors can't shake this massive net loss.

What happened

Shares of GoodRx Holdings (GDRX -1.85%) got crushed on Friday after the company released financial results for 2020. A massive fourth-quarter net loss is likely the primary culprit spooking investors today. As of 11 a.m. EST, GoodRx stock was down 10%. 

So what

In 2020, GoodRx generated revenue of $550 million, which was up 42% year over year. This was actually slightly ahead of Wall Street's expectations. However, its net loss increased by a mile. For the year, GoodRx had a net loss over $293 million. For perspective, it had net income of $66 million in 2019.

A frustrated man lays his head down in defeat with a down stock chart behind him.

Image source: Getty Images.

Perhaps the drop for GoodRx stock would have been smaller if the market in general wasn't also down so much today. But this net loss does look disturbing on the surface and investors' concerns are understandable. However, digging deeper, the co-CEO of the company got a $285 million stock-based compensation (SBC) payday due to the company's initial public offering -- this SBC was called the Founder Awards. Furthermore, the company donated $41 million in stock to charity. Excluding these expenses, the profit picture looks much better for GoodRx. 

Of course, shareholders should note that there's still $160 million in SBC left on the Founder Awards, which is expected to be recognized over the next two years. Therefore, this drag on net earnings will still be there going forward, but at a reduced level. 

GDRX Chart

GoodRx stock returns since IPO vs. the S&P 500. GDRX data by YCharts

Now what

With its financial report, GoodRx management offered guidance for the coming quarter and year. It expects 30% year-over-year revenue growth in the first quarter of 2021. And for the year, it expects revenue of $735 million to $755 million, which represents 30% to 32% growth from 2020. 

With double-digit growth on tap and non-recurring expenses lower going forward, GoodRx seems well positioned for success in the coming year. However, the stock still trades around 21 times forward sales, which is traditionally considered very pricey. Therefore, potential investors will have to decide whether a 30% growth rate warrants that kind of premium valuation.

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