Government Pricing Reforms And Tech Rivalries Will Reduce Future Prospects

Key Takeaways

• Regulatory changes and industry consolidation threaten GoodRx's core business model and long-term growth prospects by shrinking its addressable market and eroding revenue streams.
  
• Rising competition from large tech and retail platforms, along with stricter data privacy rules, risks reducing user engagement and limiting monetization options.
  
• Strategic expansion in pharma solutions, deeper pharmacy partnerships, diversified subscriptions, and healthcare trends position GoodRx for long-term revenue growth and improved margin stability.

Catalysts

Offers information and tools that enable consumers to compare prices and save on their prescription drug purchases in the United States.

• Potential changes in government drug pricing, such as the implementation of stricter price controls or reforms within Medicare and Medicaid, may significantly erode the discounts GoodRx can offer, undermining its value proposition and directly reducing both user traffic and top line revenue.
  
• Accelerated moves by major tech firms and retail giants to embed prescription savings directly into broader digital healthcare ecosystems threaten to render GoodRx's services redundant, which could result in permanent declines in user growth and long-term affiliate earnings.
  
• Growing consumer data privacy regulations and heightened public sensitivity about sharing health data could sharply limit GoodRx's ability to monetize its user base through targeted advertising and pharma relationships, reducing ancillary revenue opportunities and compressing overall margins.
  
• GoodRx remains structurally dependent on pharmacy benefit managers and large pharmacy partners; any further strategic shifts, such as PBMs excluding GoodRx from preferred networks or altering fee structures, would pose a material risk of sudden revenue loss and diminishing user retention, as seen in recent ISP program declines.
  
• Continued industry consolidation among pharmacies, PBMs, and insurance providers could eliminate the market for third-party coupon and discount programs altogether, narrowing GoodRx's addressable market and putting long-term earnings growth at risk.

GoodRx Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on GoodRx Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming GoodRx Holdings's revenue will grow by 4.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.3% today to 10.1% in 3 years time.
• The bearish analysts expect earnings to reach $91.0 million (and earnings per share of $0.27) by about August 2028, up from $34.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, down from 43.5x today. This future PE is lower than the current PE for the US Healthcare Services industry at 59.7x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.73%, as per the Simply Wall St company report.

GoodRx Holdings Future Earnings Per Share Growth

Risks

• GoodRx is experiencing significant success in its pharma manufacturer solutions business, with 32% year-over-year revenue growth in the most recent quarter and direct line of sight to 30% or higher growth in 2025, which could provide a strong new engine for top-line expansion and boost overall revenue and earnings.
  
• The company has made substantial progress in developing and expanding strategic partnerships with both large pharmacy retailers and independent pharmacies, including new pharmacy counter integrations, e-commerce, and the launch of Community Link, which strengthens platform stickiness and can enhance revenue per user, supporting long-term revenue and margin stability.
  
• GoodRx is actively diversifying its revenue mix by expanding its subscription offerings into high-demand categories such as erectile dysfunction, weight loss, and hair loss, leveraging its large engaged user base of roughly 300 million annual platform visits, which can drive higher recurring revenues and improve net margin resilience over time.
  
• The broader healthcare landscape is creating secular tailwinds, including rising drug prices, increasing uninsured populations due to Medicaid cuts, and higher out-of-pocket costs for consumers, all of which are likely to increase the need for prescription savings and could directly translate to higher user engagement and transaction volumes, bolstering long-term revenues.
  
• Despite recent headwinds, the company continues to achieve strong adjusted EBITDA margins, with a 6% year-over-year increase and 160 basis points of margin improvement, alongside ongoing cost reductions and operating efficiencies that are likely to provide support for sustained earnings growth even in volatile environments.

Valuation

• The assumed bearish price target for GoodRx Holdings is $3.4, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of GoodRx Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $3.4.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $899.3 million, earnings will come to $91.0 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $4.33, the bearish analyst price target of $3.4 is 27.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.