When you think about telehealth, most investors think of Teladoc Health (TDOC -2.40%) or Doximity (DOCS 0.97%), but few will think about GoodRx's (GDRX 1.55%) GoodRx Care.
Telehealth is just one of many revenue streams for the company. It also helps bring free users deeper into the GoodRx ecosystem. Optionality and a freemium-based model are two characteristics I love to see in a business, and GoodRx has both, which is why I think it is one of the top telehealth stocks to buy and hold.
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Outstanding optionality
GoodRx has four impressive sources of revenue. In order from largest to smallest, its sales come from prescription transactions, subscription services, and "other" revenue, which consists of telehealth revenue and advertising revenue.
Transaction revenue comes primarily from admin fees. When consumers bring GoodRx coupons to the pharmacy, a portion of the drug price goes to pharmacy benefit managers (PBMs) -- who negotiate prices for pharmacies between the drug manufacturers -- and a portion of that goes to GoodRx. In a way, it is the antidote to high drug prices: Consumers can visit one of the 70,000 pharmacies in the U.S. that accept GoodRx and save an average of 79% on their prescriptions, or they can subscribe to GoodRx Gold for just $6 per month and save closer to 90%.
Advertising revenue comes from drug manufacturers who want to advertise their medicines to the 20 million GoodRx users with high purchasing intent. This method of advertising is quite effective: 19 of the top 20 pharmaceutical companies sell on GoodRx, and they spent an average of 50% more in second-quarter 2021 than they did one year ago.
GoodRx's telehealth segment, GoodRx Care, has extreme potential because the company has three different ways to monetize its telehealth customer base. First, telehealth calls cost $39 -- or $19 for a Gold subscriber -- so frequent users are incentivized to become paying members.
Second, if a customer is deemed to need a prescription during the call, doctors can promote GoodRx coupons -- which are free to use -- that consumers can use to buy their new prescription, bringing consumers deeper into the GoodRx ecosystem.
Third, consumers can have prescriptions delivered via mail after the telehealth call to them, where GoodRx can charge a fee and (again) bring the consumer deeper into the ecosystem.
Proven by amazing results
GoodRx is growing in all segments of its business: In Q2 2021, total revenue grew 43% from Q2 2020 to $177 million. Its subscription revenue grew 125% to $14.3 million -- driven by 88% growth in subscriptions -- and its other revenue grew 136%, passing $17 million.
Bringing non-paying customers into the GoodRx paid ecosystem has been a primary focus for the company: It recently launched GoodRx Heath -- a free online information resource to help consumers get health-related questions answered. Through this, they promote the usage of GoodRx's free discount app, hopefully turning these learners into monthly active customers. Monthly active customers grew 36% to 6 million in the recent quarter, but subscription customers grew much faster, indicating that shifting free customers into paying customers has largely been successful.
This success has been driven primarily by the amazing benefits that GoodRx provides: By giving medication discounts to consumers, GoodRx has helped patients obtain at least 78 million prescriptions they otherwise may not have been able to afford. The company also helps providers. In an internal study, 89% of providers surveyed say GoodRx saves them and their staff time on administrative tasks.
The company reported a net income during the second quarter of $31 million with a net income margin of 18%. Net income has had large swings from positive $31 million to negative $298 million, but with fast-growing revenue in subscriptions, advertising, and telehealth combined with gross margins of 94%, the company's net income could slowly stabilize and stay positive. Its free cash flow also looks strong: GoodRx has generated $77 million in free cash flow so far in 2021.
Hills to climb
GoodRx is still facing competition, namely from Amazon's (AMZN 3.43%) PrimeRx -- which focuses on mail-order prescriptions rather than in-person prescription orders. "Amazon has been trying to grow a pharmacy delivery business," co-CEO Trevor Bezdek said in GoodRx's Q2 conference call. "We believe they have not been successful. Mail-order prescriptions only make up about 5% of fill count in the U.S. Even through COVID, mails remained a small piece of overall volume and is now starting to decrease as COVID eases." He added that GoodRx has "observed almost no usage of the Prime Rx discounts at retail."
The company's valuation is high -- trading over 25 times sales. It trades over two times higher than Teladoc, which trades at 10 times sales, but after considering the company's solid margins, optionality, and customer monetization, GoodRx certainly could make a case for its valuation. GoodRx's service lets itself, consumers, healthcare providers, and investors win. If it continues to gain customers and increase revenue from subscriptions, telehealth, and advertising while steadily growing transaction revenue, GoodRx's future could be very bright. That is why I am planning on holding this stock for the long haul.
