In this episode of Industry Focus: Wildcard, Dylan Lewis and Motley Fool analyst Brian Feroldi take a deep dive into GoodRx (GDRX 2.21%). GoodRx connects consumers and pharmacy retailers, creating a win-win-win model that's beneficial for all stakeholders. The guys give a breakdown of the company's financials, business model, operational scale and reach, competition, future growth, and much more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on September 23, 2020.
Dylan Lewis: It's Wednesday, September 23rd, and we are talking about GoodRx. I'm your host Dylan Lewis, and I'm joined by Fool.com's foremost front man of free-flowing Foolish philosophies, Brian Feroldi. Brian, how are you doing?
Brian Feroldi: I am good, good, good, Dylan; how are you?
Lewis: [laughs] I'm good, too. And I think good is a nice theme word here, because we're going to be talking about GoodRx. And this is a fascinating business. I always love being able to do prospectus shows. I always love talking about a company as soon as it goes public, when we have the height of interest and we have the most focus on the business, Brian, and that's exactly what we're going to be doing today.
Feroldi: Yeah, and I like it when companies come public that I've heard of before and have actually used in my real life. I myself have used GoodRx in the past to get prescriptions. Dylan, have you ever heard of or interacted with GoodRx prior to their IPO?
Lewis: I have not. I don't have any active prescriptions, so I haven't needed to. I'm admittedly a little behind and definitely need to get caught up on my doctor's visits, though. [laughs] So, I've been kicking that can down the road a little bit, need to get on that. Perhaps I will be a customer, [laughs] once I get back to the doctor.
Feroldi: Perfect. I think that GoodRx is a fabulous company, and as we're going to get into, I always almost thought of this as like a public service, because the idea here is, you go to their website and you get a discount on buying medication. So, I was curious to see how you turn that into a good business. Turns out this is a pretty good business.
Lewis: [laughs] Yeah. And in addition to all the other, kind of, wonderful elements of this coming together in terms of timing, we also had a listener reach out and ask us about this. So, Brian, you had independently pitched me this because you just thought it was an interesting company to talk about. And one of our listeners, Alan, had written into the show, basically just saying like, hey, this seems like a cool business, let's talk about it. We're going to do exactly that.
You teed up a little bit what they do, but let's really get into it, because this is fascinating. I think it's a business that adds transparency to a space that is often very opaque.
Feroldi: Yeah, I like the founding story here. And it's right in the founding letter that was put out when the company filed its S-1. So, the story that they say is that one of the founders had really good health insurance and wanted to fill a prescription, walked down to his local pharmacy and they wanted $450 for a prescription with insurance. And he just was, like, flabbergasted at how high that number is when he had good insurance behind him. Then he took that same prescription and shopped around and found that prices at other pharmacies, even within his local area, were vastly different. He found a price as low as $200. And what he said was, this is a mess. This process is so complicated. There's absolutely no transparency. And he set out to do something about it.
So, him and his buddy launched this business, GoodRx, in 2011. And it has grown extremely rapidly over the last 10 years since they've launched. It's currently the No. 1 most-downloaded medical app on the App Store. It's got 4.9 million monthly active customers; that was up 32% year over year. Eighty percent of its customers, of its orders, are repeat activity, Dylan, repeat. Spoiler alert: recurring revenue here; you know we love that. And to date they've saved consumers a total of $20 billion in savings. These are impressive numbers.
Lewis: Tech has been creeping into almost every industry, I think, over the past decade. And I think a lot of our listeners, a lot of our members are probably familiar with some of the telehealth businesses out there. I think what's cool about this business is it plays on that a little bit, but it brings so many of the benefits to a marketplace, on the consumer side, that you would expect, as information transparency increases, as technology becomes a much larger part of these older, a little bit more stuffy, stagnant industries.
Feroldi: Yeah. And a real simple analogy here is they are the Kayak of prescriptions. You go to them, you put in your prescription, they shop around for you, they tell you what retail outlet you can go to to get the best price, and they provide you with a barcode. When you go pick up your prescription, you are guaranteed to pay that lower price. So, it's a shopping portal for consumers for prescriptions, and it clearly saves consumers money.
Lewis: And the value prop, if you're trying to understand where they fit, because they're a little bit of a middleman here, is they are offering consumers lower prices and transparency. And on the pharmacy side, they're basically funneling traffic, they're providing patients that are looking to get their medicine filled.
Feroldi: Yeah, they say that they are win-win-win for all parties involved. They're a win for the consumer, obviously, because the consumer is saving money. They're a win for the pharmacy, because between 20% and 30% of all prescriptions that are filled at the pharmacy are never actually purchased, they're never picked up. And you can imagine what's the No. 1 reason that that happens, cost. It's cost. So, if you go to get your prescription filled and the cost is astronomical, I completely understand why some people are walking away.
GoodRx, through its cost-saving initiatives, helps pharmacies turn those 20% or 30% of customers into actually paying customers by reducing their bills. It's also a big win for the healthcare providers in general, because if you're a doctor and you're prescribing a pharmaceutical treatment to your patient, adherence to that policy is extremely important, it's extremely important that you take your pill once per day or once every two days or whatever your formula is. And healthcare providers have a heck of a time getting some patients to follow through. Again, No. 1 reason why, cost. GoodRx, kind of, solves the issues for consumers and healthcare professionals alike.
Lewis: Yeah, it doesn't really matter what the doctor tells you to do, if you don't do it, [laughs] then it's empty advice, right?
Feroldi: Exactly right. And for the pharmaceutical companies, there's also a win there, because GoodRx has now developed this enormous network of patients. I mean, almost 5 million active patients that are buying, using its system annually. That gives pharmaceutical companies an outlet to reach out directly to consumers to help them afford their medications. A lot of pharmaceutical companies offer things like co-pay cards, patient assistance programs, or other coupons and incentives, but it's a hassle for consumers to get access to those things and to actually use them. GoodRx acts as a middleman, again, connecting pharmaceutical companies to consumers to maximize the chance that they're going to fill the prescription.
Lewis: Brian, before you called them the Kayak of the prescription industry, that is the lion's share of what this company does, but it's not the only thing that GoodRx does.
Feroldi: They have four actual business units, or four platforms as they call them. The flagship one is the prescription product, it's called GoodRx prescriptions. And that derives 94% of revenue. So, that is the business in every real sense. Over time they have iterated on their platform and rolled out new products; and they have three of them. One is called GoodRx Gold subscriptions. And these are when consumers or businesses actually share a portion of the fees with GoodRx. So, Kroger is a company that's rolled out something called Kroger Savings with GoodRx. And Kroger actually pays subscription fees to GoodRx. There's also GoodRx manufacturing solutions. So, again, that platform allows pharmaceutical companies and pharmacy benefit managers to connect with patients and actually market to them.
And finally, it is a really interesting one. They actually acquired a company called HeyDoctor two years ago, which is a telehealth company very similar to Teladoc or Amwell. And it is a telehealth service that allows consumers to connect with doctors in case they need a prescription. So, about 30% or 20% of consumers want a drug but don't necessarily have a prescription for it. Through GoodRx's platform, you can chat instantly with a board-certified doctor and get a prescription filled for that product. Those are all small revenue sources today, but they're growing very quickly.
Lewis: If you're thinking about the strategy and why they'd be interested in getting into that telehealth space; they, I think, are kind of looking at that as a way to build their platform out. And ultimately, it's something that I think pushes more people to their prescription business. I imagine that that is the pipeline and that's kind of the thinking; do I have that right?
Feroldi: I would think so, but it also shows optionality and a willingness to think outside the box. One of the things that I noted up and down the S-1 is that the management team here clearly thinks that their platform can be used for things beyond subscription filling, and one of the areas that they can look into in a big way is, again, medical adherence. Are there businesses that they can build around that in the future? It's possible. But they've already launched three new ones. Again, they're a tiny portion of the company revenue today, but they could become meaningful growth drivers in the future.
Lewis: And in addition to the core business operations, GoodRx also has its philanthropic arm, which is kind of a nice little side to the business. I think that's kind of neat.
Feroldi: Yeah, they launched something called GoodRx Helps, which is designed to give Americans easy and free access to 500 of the most common medications. Their philanthropic arm is getting 1 million shares of their common stock through the IPO process, which is going to be a not insignificant amount of money. And again, this will be used to allow for medications to be given to those that just can't afford them.
Lewis: You mentioned that HeyDoctor acquisition before; that is not the only acquisition that this company has made, they also bought another company earlier in 2020.
Feroldi: They bought a company called Scriptcycle earlier this year for $60 million. This is actually a pretty sizable business, so that's a drop in the bucket compared to the company's financials. But I think it's going to be, just like we've seen with Teladoc and Amwell, I think that acquisitions are going to be a part of the growth story moving forward as they look for more ways to penetrate the healthcare system.
Lewis: I don't know if we touch on it yet, but this is roughly a $10 billion business. You know, it'll fluctuate a little wildly just on those first couple days of trading. So, a $60 million acquisition is not huge in the context of a business that's worth $10 billion. Obviously, you want things to work out, but the future is not being bet on this Scriptcycle acquisition, and I think that's kind of the important thing to emphasize there.
Brian, you said it before, but 94% of the top line is coming through this prescription business, this transparency business, the GoodRx prescriptions, that I think most people are probably familiar with. It's growing quickly, there are other segments that are far smaller that are growing faster, but overall this business is growing pretty strongly. I mean, it was like 40% growth year over year in the first half of 2020; that's nothing to sneeze at.
Feroldi: Yeah, very impressive top-line numbers. So, again, in the first half of 2020, their prescription business grew 42%; that is the lion's share of revenue at 94% of total revenue. Their other businesses, which are those other three we just talked about, only 6%. But that grew 171%. So, if those growth rates keep up, it won't be long before those other business units are actually meaningful contributors to the top line.
But what's great about this company is, not only is the top line impressive, the rest of the income statement is really impressive, too. This is a company, Dylan, with 95% gross margin. Let me say that again, 95% gross margin. Holy cow!
Lewis: [laughs] Yeah, I was actually looking through our notes before the show. And I was, kind of, looking at the financials and our notes at the same time. And I saw that and I was like, wait a minute, I thought it was like 30%-something, and I realized I was staring at the operating margin. And I was even impressed by that; which is very strong. But yeah, this is a business that [laughs] scales very well and is wildly profitable, because, hey, it's all digital.
Feroldi: Exactly. And they're a connection business. They're essentially selling digital code. And the majority of their revenue does come from their pharmacy benefit management partner. So, make no mistake, the revenue is coming from the industry itself. But, hey, that is some very, very high margin revenue. Now, with the gross margin that high and a top line growing that fast, the rest of the numbers are really, really good. Their adjusted EBITDA margin, not exactly a term I love, but, hey, it is something. Their adjusted EBITDA margin was 39%. In the first half of the year, they cranked out $55 million in net income on $257 million in revenue; that's a 20% net income margin at this stage of the game. And that net income is for real. They pumped out $75 million in free cash flow. These financials are jaw-dropping.
Lewis: [laughs] Yeah. And maybe it's just because we spend so much time talking tech, Brian. The trade-off is, you get high growth, but it's not profitable. And maybe you wind up with those nice margins or you wind up with a profitable company that just doesn't have the top-line growth. This is kind of one of those rare combinations of the two.
Feroldi: It is. And it kind of makes you scratch your head a little bit about why they're coming public if they're so unbelievably profitable already. But given where valuations are today, [laughs] especially for businesses of this caliber, I'm sure they're going to do just fine when they do come. And I think they came public today or yesterday, or it's like sometime right around there, but their post-IPO balance sheet is going to be pretty darn healthy. They're estimating that their cash balance would be about $800 million post-IPO. They will have $700 million in debt, which is a bit surprising to me given how much free cash flow this company has pumped out. I would have thought that they would have wanted to wipe out their debt in the IPO process, they certainly could post-IPO, they have a lot of cash now, but it's an OK balance sheet, not the best we've ever seen. But when your core business is that profitable, the debt shouldn't bother you that much.
Lewis: Yeah. I know that this business didn't have a lot of cash on the balance sheet prior to going public, at least relative to some of the debt they had on the books. So, nice that they're able to bolster that, and maybe that was some of the motivation there in addition to, you know, giving people some liquidity and also just raising the profile of the business.
It does seem like the financials for this company will support it having a pretty comfortable cash war chest to work with as it wants to possibly acquire other businesses or establish itself in other verticals, though I can't imagine it's going to have any shortage of financing with the way that the income statement looks.
Feroldi: Nope. They are highly profitable and pumping out free cash flow. So, they have plenty of optionality when it comes to their financial statements. One of the things that did stand out to me was their stock-based compensation; again, pre-IPO. We don't know what this is going to change after coming public. But in the first half of 2020, that's the year, stock-based compensation was $4 million.
Lewis: The other thing I want to know with these financials, as impressive as they are, is: We talked about the other businesses and how for the most part this prescription side of their business is what's really driving the ship. If these other segments wind up really becoming big contributors to the top line, the margin profile will likely change a little bit. That is a wildly profitable business, and it's almost impossible for anything else to match those margins, it's just not going to happen. And we've already seen a little bit of margin dip; gross and operating margins were both down year over year for the first half of 2020. And a big part of that is, simply, businesses that aren't quite as profitable are grabbing more and more of the overall top line, that's just going to continue, so don't freak out too much if you see margins dipping, because it just means that some of those other business segments, which probably feed into the overall growth story for this company, are becoming a little bit more relevant.
Feroldi: Yeah. And we are seeing that already starting to happen. Gross margin was 95% for the first six months of the year. Remarkably, that was down [laughs] when compared to the prior year. The gross margin was previously 96.5%. To your point, as those other businesses do ramp, the gross margin is probably going to have some decline to it. But still, even if it declines all the way till 90% or even 80%, that's still a ridiculously profitable business.
Lewis: Brian, I admittedly am not as up to speed in healthcare as I am other spaces, but when I hear the founder story and some of the other metrics that you threw out for this business, talking about how it is one of the most downloaded medical apps, I look and I say, this seems like a first mover in a space that's only going to get more popular, and that feels like a moat to me.
Feroldi: Yeah, I would say that that's correct. I mean, to me, the biggest advantage that this company has is just its distribution and its scale at this point. They claim that their platform uses 150 billion different price points every day. And the scale and the size of the operation does give them some negotiation power over their pharmaceutical partners. They also have a pretty trusted brand name and their system is directly integrated with some electronic health record systems, so I do think they have some advantages going for them. I wouldn't call this the widest moat [laughs] that we've ever seen by a long shot, but I do think there is a moat here that they're building.
Lewis: Yeah. And by virtue of being a middleman and trying to connect buyers with people that are able to fill those prescriptions, the larger your client base is, the larger your customer base is, the more power you're going to have at the table and the more that you're going to be able to get better terms for those customers and also for yourself. So, I mean, there's some network effect there, it's not quite as strong as maybe some of the other businesses that we talk about, but they seem to be very well positioned for where this industry is going, and just generally what consumers want.
You know, what we see no matter what industry it is, is transparency tends to be better for consumers. Understanding the inputs, understanding the pricing, is generally going to lead to better consumer outcomes.
Feroldi: Yeah. And I think that there are some, you could say, some network effects going on here. I mean, loose ones, right? GoodRx is accepted at 70,000 pharmacy retailers in the U.S. And it does have millions upon millions of consumers that have the app on their phone. Once it's on your phone, do you really want to download anything else? Do you really want to use a competitor's product? And if you did, what would be the advantage of doing that if GoodRx can already save you the most money? So, I think there is some switching cost there. And they have done a nice job scaling the business. But again, the moat isn't exactly unassailable.
Lewis: Brian, can't talk healthcare without talking about TAM [total addressable market] as well. You know, this is an industry that has a ton of money flowing into it, and unsurprisingly, the total addressable market for a business like GoodRx is quite large. Let's put some numbers to that.
Feroldi: Yeah. And again, these are coming from the company, [laughs] so put a big asterisk next to what they say. But they see their TAM as, wait for it, $800 billion. That's definitely a number that needs an asterisk next to it, so let's break that down. According to them, they see that their prescription business has $524 billion in total addressable market opportunity. I think the important number there is that that is the gross volume, that's not their take rate on it. Last year they processed about $2.5 billion in pharmacy claims. So, if you compare that, then they think that they essentially have less than 1% market share. They're also in the telehealth space, that is a market that is growing pretty rapidly, and they estimate that as a $250 billion company. And finally, with the advertising that they do, the advertisement opportunities that are available through their pharmacy partners, they peg that at $30 billion.
Again, I'm not going to place too much emphasis on any one of these numbers other than to say they have lots of opportunity just within their core market.
Lewis: We spend plenty on healthcare here in the United States, and if you can seize any portion of that pie, you're probably going to be a pretty sizable business. We talked about it before, but a lot of really encouraging stuff with how customers tend to look at this platform, a lot of satisfaction, it's an incredibly well-reviewed platform, and that tends to bode well for businesses.
Feroldi: Yeah. This is a company that consumers really like and healthcare professionals really like. I really like it when companies put out their net promoter score, that's a metric that I really like to look at. And they say that their net promoter score among consumers is 90. 90! That's a number that blows the iPhone away. I mean, that is an absurdly high number. From healthcare professionals, their net promoter score for GoodRx is an 86. And their app reviews, they have an average of 4.8 stars out of 5. And that is coming from over 700,000 reviews. These numbers scream consumers love us and healthcare professionals love us. That is impressive.
Lewis: Importantly too, Brian. The reviews that they get on Glassdoor, it seems like employees like working at the company. They're 4.6 stars on Glassdoor. Management seems to be pretty well-liked. And we love seeing this, we have founders in the mix right now at the company, which is always great to see.
Feroldi: The co-founders are both involved and they are, both, co-founders and co-CEOs, Trevor Bezdek and Douglas Hirsch. They have been running the show since day one. Ninety-eight percent of their employees approve of their job. And 92% of people that work there recommend the company to a friend. The company gets a total of 4.6 stars out of 5. And I actually saw in their S-1 that they said that less than half of 1% of applications that they receive actually become employees. That is the benefit of having such a dynamic place to work, you are flooded with applications and you can pick the cream of the crop employees. So, great reviews from employees, too.
Lewis: And they've also had some pretty good stamps of approval in their funding rounds. There are some pretty big names that own stock. You ran through executives before, there's not a ton of skin in the game with the shares that they currently have. However, some of the early founders are big and still own sizable parts of this business.
Feroldi: Yep. So, again, each of the co-founders own about 1% of shares outstanding; that's still 4.5 million shares. I'm actually looking at the share price right now, it came public a little earlier today and it's $48/share. So, you multiply those out, and that's, you know, $200-plus million each in skin in the game. That's not nothing. But more important here is that some of their early financiers maintain significant stakes. Silver Lake owns 34% of the company and actually added to their position at the IPO. Francisco Partners owns 22%, Spectrum owns 13%, and another VC firm called Idea Men owns 15%. Those four holders right there, that's almost 60%, 65% of the business, plus another 4% for management; that's a lot of shareholders that control the company.
Lewis: Yeah, I always think it's encouraging, too, when you have an early participant in funding rounds that decides, at IPO, we are going to double down on this business and add more. Because it's easy to look at those IPOs as exit events for folks in the venture world. If you see anyone saying, no, no, no, we want more of this business, we think there's even more growth here, that's usually a pretty good sign.
Feroldi: Yeah, I 100% agree. And it's doing really well in its IPO. Well, I guess that depends on your view. [laughs] It's up 48%, so it seems like, yet again the bankers messed up the pricing out of the gate. So, overall, Dylan, you go through everything, go through my checklist, there's a lot to like about this business.
Lewis: There's a lot to like. And I think what's tough for me with this company is, there are the risks that we normally talk about with a business, and then there are some very specific healthcare industry risks that I have a little bit of a harder time wrapping my head around. And so, we'll run through, kind of, the boilerplate stuff, but I do want to hit on some things that I think are maybe specific to this company and are a little different than what we would normally discuss, especially in the tech space.
Feroldi: Sure. I mean, it's healthcare, it's trillions of dollars of GDP, and it's constantly going to be under the scrutiny of politicians. There's always the risk that some massive political change comes down the road and that just shakes up the entire pharmaceutical industry. It's possible that under that scenario a company like GoodRx could have its business impacted significantly. That will always be a long-term risk to think about. However, the good news here is that consumers love this company, healthcare professionals love this company, and the entire nature of the company is designed around lowering the cost of prescription drugs. That's something that a lot of people are cheering for.
Lewis: Yeah. I think that healthcare is going to be a talking point in every election going forward ever, just because it is such a large portion of our spending. And you know, there are ongoing debates about whether Medicare and Medicaid should be able to negotiate prices. There are some proposals out there, kind of, targeting pharmacy benefit managers and the model of rebates. And so, more specifically, if you just want one example of this, the Department of Health and Human Services has proposed plans that remove the safe harbor regulations that allow for a lot of these rebates. If that is removed, it's possible that something like that could create issues for the core business of GoodRx. But as with a lot of, like, tax policy changes, you kind of have to just say, it's possible, it's a question mark, and allocate accordingly if you're going to own a stock like this.
Feroldi: I think that that's right. And let's double-click on that, because make no mistake here, this company depends on pharmacy benefit managers for the lion's share of its revenue. In fact, one of the biggest risks that I see is customer concentration. The PBM market has been consolidating for years, and there are just a handful of big players in the U.S. But in the first half of 2020, one company was 24% of GoodRx's revenue, and another company was 23%. So, two companies make up almost half of this company's revenue. Customer concentration is a serious issue here.
Lewis: Yeah. Customer concentration is a lot like debt, you know, if everything is going smoothly, it doesn't matter. But if anything [laughs] goes offtrack it can become a big problem very fast. And it just highlights that this is a pretty big existential risk for this business.
Aside from some of the healthcare-specific stuff, Brian, is there anything else major that you see that you think people should be aware of?
Feroldi: Well, there are a couple of things to note. As you pointed out, I think it's logical to assume that margins will decline over time as they ramp up these other businesses. And investors should be rooting for these secondary businesses to grow like crazy. That will not only add to the top line, but it will also significantly dampen down that customer concentration risk. I don't want to overplay that, either, because those numbers used to be actually much worse than they are today. The company has a history of not only growing its top line but diversifying its customer base. But as you can see, they still have more room to grow.
Another thing is, they are getting into the telehealth space in a major way, which means they're going up against the likes of Teladoc, Amwell, MDLive, Doctor on Demand. So, penetrating that market was going to be pretty tricky. And one other thing that stood out to me in the S-1 is they -- let me read this language to you right in an S-1. "We have identified material weaknesses in our internal control over financial reporting." Translation, when a company is private, it is not scrutinized on a financial basis the same way that it is when it comes public. During the IPO process, the orders came in and said, we don't like how you account for some things. GoodRx said that we are going to be addressing this and fixing this, but "material weakness in financial reporting" are not words that you like to associate with public companies. [laughs]
Lewis: [laughs] No, it is not. That is almost always a red flag. And I think going back to what you were saying, Brian, about the existence of some pretty big players in the telemedicine space. Teladoc is a $17 billion business and they specialize in telehealth. We are talking about a very small portion of what is roughly the same-size company that is their telehealth ambition. And so, they're going to be going up against some pretty big players to take some market share there. Now, it isn't as crucial to their long-term success, it's something that could really be a flywheel for them and create a lot of growth for some of their other businesses. So, it's not core to the thesis, but if they're going to be spending money and investing in that space, it's not a surefire win.
Feroldi: No. And let's not forget that Teladoc is also in the process of merging with Livongo Health. So, that $17 billion is going to expand dramatically just through its acquisition. Yeah, the company, it's going to be getting into these other ventures. I think its core pharmaceutical service, it is clearly the top dog, it is clearly the leader in there. And it can leverage that into other opportunities. Getting traction in a telehealth space might be a little bit tricky, but, hey, it's possible knowing Teladoc that this is on the Teladoc acquisition list down the road. [laughs]
Lewis: [laughs] I think there are a lot of people that would be disappointed if that happens. You know, based on the fact that Silver Lake is hopping in there and buying shares at the IPO, I have a hunch that they'd like to see this company be publicly traded for a long time. The takeout, Brian, it's bittersweet, because sometimes you get that premium, but it winds up kneecapping what could be a really long-term growth story.
But I thought the same thing, I was like, you know, this is a small enough business that someone out there could decide it's worth scooping up at some point.
Feroldi: Yeah, I think so. One other thing I want to just point out there is that there is a dual-class structure, the shares ownership structure as well. If you're a public shareholder, you get one vote; if you own some of the Class B stock, you get 10 votes. Translation, this is a controlled company, your vote as a public shareholder does not matter. So, if you don't like what management is doing; tough, you can't change it.
Lewis: [laughs] Yeah, you have to be onboard, that's basically the way it works with these companies where you don't have the ability to oust leadership when it comes to the votes, because they have the ability to control voting and they have the vision and they have the seats in the executive room to be able to make those things happen. So, you have to buy their vision, you have to buy the mission, and you have to just say, you know what, I'm trusting you guys, you're in the driver's seat, I'll hang out in the back seat and, you know, eat snacks. [laughs]
Feroldi: And if you trust the management team, you should be perfectly fine with that. And if you don't, you shouldn't buy the stock in the first place. So, that's not something that bothers me, if a founder controls a company and I believe in that founder, I'm fine with that, it lets them think longer term. And if I don't trust the person in charge, I'm not buying the stock, period. So, it's not something that will prevent me from owning a stock, but it is still worth knowing.
Lewis: So, Brian, quick recap on GoodRx. Beautiful financials, growing business, disruptive company, pretty big growth runway ahead of it, certainly some existential threats to the core business model. But that sounds an awful lot like a watchlist stock for you. Where are you putting this company?
Feroldi: Definitely going right on my watchlist. I mean, for me, the things that would keep me from holding it back are going to be post-IPO valuation, which I'm sure is going to be nosebleed upon nosebleed. And a company like this, there's a lot for me to like about it. The customer concentration, I'm not entirely comfortable with yet, since we've only been researching this company for, geez, two days now. So, this is one that I will put on my watchlist, I will continue to watch it from the sidelines. And I want to see how it acts as a public company, but I could very much see myself being a shareholder one day. How about you, Dylan, where does this rank on Dylan's watch list?
Lewis: [laughs] Yeah. I think it's probably a top five watch list stock for me right now. I really like businesses that can throw off this much cash with their core operations, it just opens up so many doors. The fact that they're profitable while still growing as fast as they are, and without having to spend less on marketing to make that profitability happen. You know, I don't think they're under any pressure to reach profitability, it's more just they have the financials that support it. That's obviously wonderful. And it's a great setup for them long term. I think this is a space that probably needs players like this. Customers love it, that's usually a pretty good investing thesis.
Feroldi: Yeah. And let's not forget about why the company exists in the first place. The company exists to help lower [laughs] the cost of healthcare. That is a mission that everybody can get behind.
Lewis: Yeah, there aren't too many people that are on the other side of that mission. [laughs] Well, Brian, I always love having you throw some watch list stocks on my radar and the radar of our members and our listeners as well. Thanks so much for hopping on today's show.
Feroldi: Great to be here, this will be another fun one to follow.
Lewis: Oh, yeah, definitely. Another Wild Card Wednesday in the future, I think, we'll check in on this one. [laughs]
Feroldi: Let's do it.
Lewis: Listeners, that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say "Hey!" shoot us an email over at [email protected] or tweet us @MFIndustryFocus. If you want more stuff, subscribe on iTunes or wherever you get your podcasts.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.
Thanks to Tim Sparks for all his work behind the glass, and thank you for listening. Fool on!
