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Can GoodRx Bounce Back From Its Pandemic Slowdown?

By Brian Orelli, PhD and Keith Speights - Mar 28, 2021 at 7:28AM

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Some of the drug discounter's growth is out of the company's hands.

The COVID-19 pandemic produced a growth slowdown at pharmaceutical drug discounter GoodRx Holdings (GDRX 3.14%). If patients aren't going to their doctors, they're not going to need drug discounts. The increase in physical distancing also blunted the flu season, which further reduced the need for medications. In this video from Motley Fool Live, recorded on March 15, Fool.com Contributors Brian Orelli and Keith Speights discuss what outside factors could help GoodRx accelerate growth in the quarters to come.

Brian Orelli: Our first story today is, last week, GoodRx reported fourth-quarter earnings [revenue] of $153.5 million, up 36% year over year, and that's a little slowdown from the whole year, which is up 42% year over year. On a GAAP basis, net loss was a giant one at $298.3 million compared to a profitable year-ago quarter. But it looks definitely bad, but the IPO triggered a $285 million stock-based compensation, and then the company donated $41 million of the stock to charity. So when you add those back in, the company would be profitable. Not a horrible quarter. Looking at the adjusted net income, any thoughts on the recent quarter, guidance for the year ahead, looks like they're at about 35% growth on the top line at the midpoint. That's about where the fourth quarter landed, but lower than growth for last year.

Keith Speights: It's not unusual for companies that have super-high revenue growth to see that growth slow somewhat as they mature, so I think that could be part of the issue there with GoodRx.

But the other thing is that the company continues to face some challenges from the COVID-19 pandemic. They face some direct challenges because there have been fewer physician office visits, and of course, that directly impacts them. And then indirect challenges because it's been an especially mild cold and flu season, and GoodRx tends to make more money during normal or above-normal cold and flu seasons. So there are a couple of challenges there.

And I think those headwinds are especially evident when you look at their Q1 guidance. They're looking for revenue growth of only 20% year over year in the first quarter. Q1 is one when you typically expect more doctors visits, higher cold and flu cases, and maybe drive those revenues higher. So I think you're seeing that especially show up in the first quarter, but the rest of the year, I think, they're expecting is going to be pretty good.

I'm really not all that concerned about GoodRx's growth slowing in light of those factors. Brian, you and I have spoken on several occasions about a lot of companies. You'll have a better sense of how the business is doing after 2021 is over, and I think that's probably the case with GoodRx.

The stock is still priced at a premium, though, at 33 times trailing-12-month sales, 125 times forward earnings. Those are premium valuations. With that kind of valuation, investors really demand everything go perfectly, and with that guidance, they didn't think it was as perfect with that slowing growth, so the stock slipped a little bit. But I think overall the fundamentals still look pretty good for GoodRx.

Orelli: You'll have to see that -- I've heard a lot of people say that the next flu season could actually be pretty bad because the flu season is so light, they're not going to be able to to figure out which viruses they should include in the flu shot, and so that might actually result in a harder flu season next year, which could benefit GoodRx in the second half of this year.

Speights: Exactly. There are certain companies that benefit from really harsh cold and flu seasons. GoodRx is one of them.

Orelli: Yeah.

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