Hims and Hers Stock Analysis 💊
Hims & Hers (HIMS) is down about 60% from its all-time highs. On the third anniversary of its IPO, here's why I think it will recover.
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Hims & Hers (H&H) is a US telehealth company. It offers online consultations to customers and provides them with the treatment they need through both delivery and partnerships with large retailers. Its market cap is currently about $1.8 billion.
Upon its founding in November 2017, it only offered treatments for men, primarily for erectile dysfunction and hair loss. But in 2018, Hims launched Hers, a brand selling birth control pills and the drug Flibanserin, which increases the sex drive of pre-menopausal women.
The company now offers a whole host of treatments for both sexes, everything from hair loss to mental health and skin care.
H&H went public via a SPAC in October of 2020. After reaching a deal with Oaktree Capital Management at a valuation of $1.6 billion, the company began trading on the New York Stock Exchange in January 2021.
H&H says it “has the technical platform, distributed provider network, and access to clinical capabilities to lead the migration of routine office visits to a digital format.”
Big words from a company that’s barely six years old. So how are they planning to achieve these lofty ambitions?
H&H has separate dedicated platforms for men(hims) and women (hers), each offering medication specifically for their demographic. Some treatments are developed by a separate manufacturer and sold under the H&H brand and others are developed and sold by the company itself.
Their product offering generally focuses on conditions where treatment requires ongoing care from healthcare providers and the use of over the counter (OTC) or prescription medication on a regular basis. This provides a good source of predictive recurring revenue for the company, generally seen as a positive by investors.
Online customers can either receive delivery on a subscription basis or as a one-off. Both options allow the user to select the amount received in each delivery to suit them with discounts available to those who sign up for a longer subscription.
Their Instagram and other social media channels are clearly targeted at Gen Z and Millennials, great for the long-term future of the company. Celebrity endorsements and catchy advertising also help build reputation and trust with younger consumers. And their blog is full of information related to personal health, providing another funnel to convert readers into paying customers.
But how is it targeting the older demographic, those who are most likely to pay for prescription drugs at the moment?
A lot of its business with this group comes not from online funnels but through its partnerships with retailers such as Walgreens and Target. These in-store partnerships raise awareness of the brand amongst non-digital natives and help it reach and sell to a broader and often higher-spending audience.
H&H has also worked to destigmatize conditions such as hair loss and sexual health. Not only helping people with these issues but also encouraging people to speak more openly about them and spread information about treatments through word of mouth.
In Q2 2023 H&H spent about 48% of its revenue on marketing, extremely high but maybe this is why its subscriber count and revenue are growing so fast. The company can easily cut its marketing spend if necessary so I don’t see this as too much of a red flag given how effectively it seems to be working.
Revenue growth has been immense. At a compounded annual growth rate of 82% in the past three years and up 57% from Q3 2022 ($144.8 million) to Q3 2023 ($226.7 million), it’s a level of growth that few other companies can boast.
Likewise, revenue per subscriber has also increased, going from $50 to $54 since H&H went public in 2021.
As you can see above, the number of subscribers to the platform has also exploded, and it was thanks to this rapid pace of growth that H&H beat its revenue guidance in 2021 and 2022 by 35% and 41% respectively.
At the start of 2023, management said it wants to reach $1.2 billion in annual revenue and $100 million of adjusted EBITDA by 2025. If its guidance history is anything to go by, and judging by its current revenue growth, it’s very likely to overdeliver on these targets.
Assets & Liabilities
At the end of Q3 2023 the company had:
$413.7 million total assets:
$250 million in current assets.
$163.7 million in other assets, including $111 million in goodwill.
$85.3 million in total liabilities:
$82.5 million in current liabilities.
$2.8 million in operating lease liabilities.
Clearly a very strong balance sheet. Cash flow has also grown pretty consistently for the past 2 years. As long as it continues, growing cash flow combined with no debt is a huge positive for the company and its chances of success.
Profit & Loss
As with most young companies, H&H still isn’t profitable.
Its loss for the first 9 months of the year has been:
2021 - $76.5 million.
2022 - $54.8 million.
2023 - $24.8 million.
It might still be losing money but it’s clearly getting closer to breaking even and becoming profitable.
Using adjusted EBITDA as a profitability metric is sometimes regarded as a red flag by investors due to the opaqueness behind how it’s calculated, but it’s what H&H reports in its quarterly reports. It can also help analysts compare companies, so it isn’t necessarily a bad thing, but it’s just something to research more yourself if you’re considering investing.
Regardless, adjusted EBITDA has been growing strongly along with the company’s margins. If it can keep growing its margins and revenue, and I see no obvious reason why it can’t, H&H promises to become a powerhouse in the growing telehealth industry.
As with most annual reports, H&H’s mentions a range of risks to the company.
These include all the standard ones (operating risks, competition, regulation, reputational risks, macroeconomic health) but I thought that 2 in particular would be interesting to dive into - competition and reputation.
Covid undoubtedly benefitted H&H but it also meant that competition in the healthcare space got a lot fiercer. It’s estimated that telehealth claims grew from about 0.1% in 2019 to around 6% in 2020. That figure will likely continue to rise as the population in the West ages and more ways to reduce the demand on straining healthcare systems are needed.
At the start of 2024, pharma giant Eli Lilly announced a new online service called LillyDirect. The new telehealth platform will offer prescription and third-party delivery of anti-obesity and diabetes drugs. H&H stock fell about 7% after the announcement.
There are other competitors in the space including Teladoc, CostCo and even Amazon through its Amazon Health platform. But it’s almost a certainty that the telemedicine industry will continue to expand, there’s plenty of room for multiple telehealth companies. New competitors will emerge and existing ones will grow.
H&H has an incredibly unique and distinctive brand and I think its popularity amongst Gen Z and Millennials puts it in a good position to remain one of the leaders in the space.
The company’s use of influencer marketing and social media opens it up to relying on third parties to grow customer awareness and reputation. If their influencers suddenly start posting controversial content it could negatively impact the H&H brand.
The social media world is fast moving and there’s also the risk that the company fails to identify the next big influencer. If they get poached by a competitor, it’d be a blow to their business. Thankfully, there are generally a lot of influencers out there and H&H surely now has the brand power and appeal to be able to attract the ones it wants.
These risks are inherent in the new social media marketing world though and so are virtually impossible to avoid. I think the real risk here would be the reverse, ie - not using these new and better forms of marketing.
A slide in the company’s Q3 2023 earnings report says that the three areas are expected to be the primary drivers of growth.
Drive Continued Product Adoption
A big driver of H&H’s soaring popularity is its shift toward personalized treatments.
Towards the end of 2023, the company also announced its new AI software, MedMatch. The platform is aimed at helping patients identify treatments that best match their individual needs. It will initially be used to help those seeking treatments for anxiety and depression but the company hopes that it eventually can be applied to other diseases and the multi-speciality care they provide.
In June of 2021, H&H acquired Apostrophe, a tele-dermatology specialist. H&H says the acquisition will “will expand its ability to provide consumers with some of the most advanced and personalized dermatology treatments, faster and at scale.” Much like H&H, Apostrophe is also targeted heavily towards Gen Z and millennial consumers.
In December of 2023, H&H rolled out a weight loss program that includes tracking tools, educational content and access to medications to help suppress a patient’s appetite. The company has also said it plans to add GLP-1 medications in the future. These are conventionally used to treat diabetes by helping people lose weight and lower their blood sugar.
There’s clearly no shortage of markets for the company to enter and plenty of products left for it to develop or sell to patients. Management has said it plans to release two new categories a year giving it plenty of room for growth and new avenues to explore.
Scaling of the Hers Platform
Scaling of Hers remains vital to the company’s success. At the moment it offers hair loss, anxiety, birth control, skin care and weight loss treatments specifically for women. There’s plenty of room to expand on these and to offer new treatments though.
At the start of 2024, the Hers app achieved a new all-time high in app store downloads, ranking #34 in the medical category.
This scaling has been facilitated by leveraging technology and a user-friendly online interface. The platform's growth reflects a broader trend in digital healthcare, where convenience, customization, and direct-to-consumer models are increasingly in demand.
Expansion has been rapid for H&H over the past few years and that shows no signs of slowing down anytime soon. A lot of this was helped by the pandemic so the company will have to find ways to continue growing now that we’ve come out of it. Thankfully, it’s doing a good job with multiple products and platforms released recently and many others in the pipeline.
It expanded into heart health in the middle of 2023 with personalized treatments. Given its lead in the sexual health sector and that this can be one of the first signs of heart issues, moving into heart health makes sense.
Its primary market is the US but in 2021 it expanded into the UK by acquiring Honest Health, a company that operates much like H&H but specializes in hair loss products. It’s got plenty of room to grow into more geographies and management has previously spoken about expanding into Europe and the Middle East.
There’s virtually limitless room for future growth across a whole range of geographies and product categories given the aging population in the west and the growing telemedicine industry. Whether H&H can maintain its position as a market leader in the field is yet to be seen, but if it can, investors should be handsomely rewarded.
H&H’s growth has been incredibly impressive given its nascency. It’s in an industry that will only become more prevalent in the future as a digital-native generation starts to encounter their own health problems.
According to TipRanks the majority of the stock is still owned by insiders which is a good sign, even if they have been selling recently as of the time of writing.
H&H’s Q4 2023 earnings will be released at the end of February. Management has guided for:
Revenue: $243-$248 million, vs $167.2 million in Q4 2022.
Adjusted EBITDA of $14-$17 million vs $3.9 million in Q4 2022.
Adjusted EBITDA margin of 6-7% vs 2.3% in Q4 2022.
Meeting these goals would serve to underline just how much the company has grown recently and set it up for a brilliant 2024.
Let’s see what happens!
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