GoodRx Under Pressure: Are PE-Driven Health Apps the Next Bubble?
GoodRx, the darling of private equity-driven healthcare apps, has recently found itself under pressure. Fresh off of a year of soaring stock prices and adulatory headlines, things are looking less rosy for the company. Profits are sliding, competitors are sharpening their claws, and now Amazon – yes, that Amazon – is muscling into their territory. It’s time to take a closer look at what’s actually going on.
A High-Flying Act Turned Grounded Bird
The GoodRx story reads like a fairy-tale-come-true for private equity. When Silver Lake and Francisco Partners acquired majority stakes in 2018, the company was a sleek freemium app that offered discount prescriptions to millions of Americans. It thrived in a healthcare landscape fraught with needlessly complex pricing structures and little transparency.
Private equity cash helped GoodRx fly high. The business model was (and is) simple: help cash-strapped consumers find their prescriptions at the lowest possible price and receive a small fee from pharmacies in return. Cue an IPO in 2020 that valued the company at an impressive $12.7 billion. The growth was billed as meteoric, transformative, revolutionary. But it also painted a target on GoodRx’s back.
The Wolves are Circling
Sensing an opportunity, competitors started sniffing around the healthcare app space, including some heavy hitters. The largest of them all, Amazon, recently launched Amazon Pharmacy, which integrates with Amazon Prime and offers its own version of prescription discounts. As Bezos’s behemoth lumbers into the prescription discount arena, GoodRx’s stock price took a 20 percent nosedive.
Unwrapping the Red Flags
Private equity’s penchant for financial engineering is well-known. Let’s unpack some of its manifestations in GoodRx’s case. One major concern is the company’s increasingly thinning gross margins, which indicate a growing cost burden. Meanwhile, the company’s reliance on outsized advertising spend for growth—running into a few hundred million bucks—brings to mind the classic PE move: growth at any cost.
Another point worth noting is GoodRx’s decision to pay dividends to its wealthy PE investors just before going public—a signature move known as a ‘dividend recap’, that can leave companies saddled with debt. In a healthcare landscape notorious for its lack of transparency and where consumers bear the brunt of escalating costs, one may begin to smell a familiar whiff of PE shenanigans.
Heading Towards the Edge?
Given the ongoing pressures, it’s hardly surprising that GoodRx’s owners are looking to cash out. The cascade of problems potentially triggering an avalanche raises questions not just about GoodRx, but the whole PE-backed healthcare apps market. Business models predicated on opaque healthcare pricing clearly aren’t foolproof, especially when you add in the risk of gigantic competitors.
The Final Word
Is GoodRx, the poster child of PE-backed health apps, the canary in the coal mine hinting at a larger bubble? With private equity’s financial engineering, thinning gross margins, and brewing competition, things could go south rapidly. As investors, consumers, and healthcare professionals, we must ask: are these PE-driven health apps a key portion of a healthcare solution, or just another ticking time bomb waiting to explode?