What happened
The stock market is in free fall right now, but it's far worse for shares of prescription-drug discounter GoodRx (GDRX 0.67%). The company reported financial results for the first quarter of 2022 after the market closed yesterday.
While Q1 results exceeded management's guidance, the company's forward guidance -- or lack thereof -- sparked major concerns from investors today. As of 11:30 a.m. ET, GoodRx stock is down 28% today, 76% year to date, and 84% from its all-time high in 2021.
So what
As already mentioned, Q1 results weren't bad. Management had guided for Q1 revenue of $200 million and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 28% to 30%. Q1 revenue of $203 million and an adjusted EBITDA margin of 31.8% surpassed these expectations.
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However, investing isn't about the past as much as it's about the future. And GoodRx's future is murky. But don't take my word for it.
In its letter to shareholders, management wrote, "We believe it is unlikely we will be able to achieve the FY [full-year] 2022 guidance we provided on our fourth quarter earnings call," followed by, "We will not be providing full year expectations at this time."
Here's the issue: Towards the end of Q1, an unnamed grocery store made changes and isn't accepting all drug discounts from companies like GoodRx. Management expects this one change to lower second-quarter revenue by $30 million. And the uncertainty is preventing management from giving guidance for the rest of the year.
Now what
Prominent analysts downgraded GoodRx stock across the board. Part of this is because the S&P 500 is down 17% as of this writing (a historically large pullback) and professional money managers are more acutely averse to uncertainty than normal. Therefore, by withdrawing guidance at this time, GoodRx was bound to get hammered.
However, that's not to say the market is necessarily overreacting. Today's news is a reminder of one of the key risks GoodRx has to overcome if it's going to be a good long-term investment. In its filings with the Securities and Exchange Commission (SEC), the company talks about how negotiations between pharmacies and pharmacy benefit managers (PBMs) are outside of GoodRx's control and could impact its business. This is what we're seeing today.
It's not over for GoodRx. But the company will need to overcome some real challenges going forward.
