GoodRx had a strong first quarter but effectively removed 2022 guidance.
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News that a large grocer is no longer accepting GoodRx’s pharmacy discount cards has wrecked the stock. Several analysts are downbeat, except one.
GoodRx (ticker: GDRX) on Monday retracted its guidance and said that its second quarter will see a $30 million revenue hit because a key grocer, which accounted for 25% of its transactions, is renegotiating contracts with all pharmacy benefit managers or PBMs on a subset of drugs. GoodRx doesn’t work directly with pharmacies or grocers but uses PBMs to manage its relationship. PBMs, who typically work with health insurance companies, tell pharmacies what to charge when a customer supplies a GoodRx coupon and ultimately take a percentage of that transaction and split it with GoodRx.
The actions by the mystery grocer — suggested to be Kroger by Morgan Stanley and Raymond James analysts in a note — means GoodRx is now unable to provide customers with discounts at the grocery chains’ locations. GoodRx now forecasts roughly $190 million in revenue for the second quarter, much lower than the $215.6 million analysts tracked by FactSet expected. Earnings before interest, taxes, depreciation and amortization, is also likely to be cut in half partly because “GDRX has no near-term plans to preserve profits by reducing cost,” J.P. Morgan analyst Doug Anmuth said in a note on Tuesday.
Anmuth believes this single grocer issue highlights a greater risk in GoodRx’s business model and could go beyond the second quarter. He reiterated his UnderWeight rating while slashing the price target to $7 from $20 earlier. The stock plummeted 28% to $7.79 on Tuesday.
RBC analyst Sean Dodge’s note cited the uncertainty around the timeline for resolution and its impact as a reason for downgrading the stock to Sector Perform from Outperform earlier. He chopped the price target to $8 from $35.
Evercore analyst Mark Mahaney also downgraded the stock to In Line, a Sector Perform or Hold equivalent, from Outperform in a note on Thursday. He said that while the grocer issue may get resolved, the revenue concentration risk was a negative surprise to him.
Neither GoodRx nor Kroger responded to a request for comment by Barron’s. GoodRx in the earnings call said it has received positive updates over the last few days from the two parties—grocer and PBMs—which indicate progress toward resolution in a timely way.
Guggenheim analyst Sandy Draper maintained his Buy rating on the stock but lowered his price target to $17 from $24. He pointed to the latest first-quarter results, which showed strength, and believes the stock’s downward move assumes a no-growth scenario for GDRX, which is definitely not aligned with his thesis.
GoodRx reported earnings per share of 10 cents for the quarter, which ended in March, higher than analysts’ expectation of 8 cents. Revenue of $203.3 million was higher than the consensus call of $200.5 million.
Draper revised monthly active consumers or MACs estimates for the second quarter to 5.4 million from 6.8 million but now expects higher per-member per-month revenue for the remainder of the year given early data around the rollout of the new pricing. Draper’s 2022 subscription revenue estimate is now higher by $11 million.
Write to Karishma Vanjani at [email protected]
