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Amazon’s Pharmacy Push Is Bad News for GoodRx Stock

Discount drug service GoodRx (NASDAQ:GDRX) offers a service which could disrupt the pharmaceutical market as we know it. Consequently, in October, I wrote a strongly bullish column on GoodRx stock.

The GoodRx app is displayed on a mobile phone screen.

Source: NYC Russ / Shutterstock.com

I’ll be the first to admit that the GoodRx stock price has declined since I made that bullish call. Sometimes it makes sense to reiterate an opinion and stay the course with a stock when it goes down.

But when circumstances change and one’s original thesis turns out to be wrong, it’s usually best to cut and run. Investing in GoodRx stock might have made sense a few months ago, but now I’d say it’s ill-advised.

After all, when an 800-pound gorilla like Amazon (NASDAQ:AMZN) encroaches on your turf, the outlook  of your business and stock probably isn’t good.

A Closer Look at GoodRx Stock

What a difference a few months can make! Things were looking terrific for GoodRx in September as its initial public offering (IPO) price was set at $33, but its shares actually started trading at $46.

Not only that, but the stock closed at $50.50 on its first day of public trading on the Nasdaq exchange. That’s an auspicious start, no doubt about it. But could it sustain this  trajectory?

Evidently, the bulls just couldn’t keep up the momentum. In November, GoodRx stock declined to a gut-wrenching 52-week low of $33.51.

The situation did improve somewhat in early December, as the bulls managed to push the GoodRx stock price up to $39. Yet there’s an imminent development that, I believe, doesn’t bode well for the company and its stakeholders.

Addressing a “Broken” System

GoodRx isn’t a pharmacy. Instead, the company offers a prescription-drug-pricing app. It’s basically a digital-discount card that’s “accepted at thousands of pharmacies across the U.S.”

GoodRx Co-CEO and Co-founder Doug Hirsch has called America’s health-care system “broken” and “messed up.” He might be right about that, and it’s commendable that his company seeks to help folks save up to 80% on their prescriptions.

From a business perspective, however, there could be a major problem for the company on the horizon. Any threat to the drug stores that work with GoodRx is, for all intents and purposes, a threat to GoodRx.

Some investors might see the eventual availability of a Covid-19 vaccine as bullish for GoodRx stock. Perhaps it will be, but there’s a problem that could easily outweigh any share-price boost provided by Covid-19 vaccines.

In the Crosshairs

In November, Amazon announced that its pharmacy segment (called Amazon Pharmacy, of course) will offer free, two-day prescription deliveries to members of Amazon Prime.

I sure wish that I could have seen this event coming in October, when I made the bullish call on GoodRx stock.

Moreover, Amazon Pharmacy plans to offer a pharmacist-staffed help line, as well as discount cards for uninsured consumers. Thus, not only are the drug stores in Amazon’s crosshairs, but so is GoodRx.

This isn’t Amazon’s first foray into the prescription-medication market. A couple of years ago, Amazon acquired PillPack, which is a company that packages and mails prescriptions.

Amazon’s more recent announcement, however, is a direct threat to GoodRx. In these already challenging times, the last thing that GoodRx needs now is to get “Amazoned,” so to speak.

Some of the bigger drug stores might survive the Amazon onslaught. GoodRx, however, isn’t a huge company. I’m sorry to say it, but this development is an existential crisis for relatively tiny GoodRx.

The Bottom Line

Don’t get me wrong. I appreciate GoodRx’s vision of transformation amid the currently problematic health-care system.

From a business perspective, though, it’s hard to imagine that the company and GoodRx stock can withstand the prospect of getting “Amazoned.”

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/amazons-pharmacy-push-is-bad-news-for-goodrx-stock-holders/.

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