HIMS Q3 earnings review

That Amazon link applies to all Generic Drug companies Drew. It doesn’t impugn Amazon itself. Can you give me one link where Amazon Pharmacy has given out any counterfeit products? You are equating Amazon ecommerce, which Amazon has many sellers on, to Amazon Pharmacy. Two totally different business models.

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I think we are getting way off topic, so this will be my last post.

I think Amazon has had a history of problems with delivering counterfeit products. Amazon has sold e-commerce items in the past that were laced with prescription drugs. Now this is not because Amazon did anything wrong but because their system allows for this abuse. But this leads to a bad reputation for items sold by Amazon.

Amazon can not use their current network or they risk counterfeit issues. Which makes it so Hims can compete with Amazon. The next question does this change the picture for Hims, and I believe it does. I don’t believe Hims will be able to grow as fast and maintain a high gross margin. But I could be wrong and that would mostly be fueled by the lack of trust people have with Amazon.

Personal note, I would never order drugs from Amazon and highly recommend you do not order drugs from Amazon.

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Drew you still haven’t answered the question. Do you have any links to where Amazon Pharmacy has ever sold a counterfeit product.

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After checking into this further I believe it is impossible to get a counterfeit product through Amazon Pharmacy.

We’re here for you

Our U.S.-licensed pharmacists check every order before it goes out. Have a question for them? Reach out anytime, day or night.

Amazon Pharmacy: Save time, save money, stay healthy.

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It doesn’t matter what they are selling. It doesn’t have to be a pain killer to be an unneeded, expensive Rx with multiple refills. I’m not saying there is unethical behavior. It’s just that the appearance is not good. The possibility of abuse is undeniable.

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It seems like Drew’s larger point is that there may be a large segment of the market that loves Amazon for socks and whatnot but might not inherently trust it as a pharmacy. I could definitely imagine that to be true, but they do a ton of pharmacy business already according to this Forbes article (1.8B) Could Amazon Pharmacy Become the Largest Drug Store in the USA?

So, plenty of people obviously don’t see an issue, but it’s a gigantic TAM and Hims has a strong and growing brand. I’ll personally wait to see how the numbers play out and hold onto my ~3% allocation.

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I think a 3 percent allocation says it all.

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I think both the threat of Amazon taking business away from HIMS and the GLP-1 shortage ending/litigation from NOVO/Eli Lilly are very real concerns.

But why not let the numbers show some signs of deterioration before heading for the exits. I understand in doing so, we might risk a 30/40% drop but that drop point could be from much higher numbers.

If you see the below chart for HIMS, here are a few things I wanted to point out:

  • HIMS has been publicly reporting earnings for 14 quarters now. And if you see the trend, it’s a great one. Two quarters ago it dipped to 46% ltm revenue growth but now has picked up with the GLP-1 kicking in to 77%
  • Margins in these three years have stayed consistent around 75-80%
  • FCF contribution has gone from -84% to +20% this quarter.

All of this to say, there is no signs of the business being squeezed yet. At some point, HIMS is going to disappoint and have a huge miss, probably print a sequential 2/3% qtr, the FCF will head the wrong way, the margins will come down to 50’s, but until that happens why not give it the benefit of doubt.

Imagine the above squeeze happens but another 4, 6 or 8 quarters down the road, HIMS could be trading much higher from here. (given it’s execution).

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A couple thoughts on this Amazon announcement,

HIMS first differentiated themselves in the tele-health market by providing a premium offering at a low price. Others in the market place went for a race to the bottom on low pricing and under cutting each other on the cheapest generics. Those low cost providers like Roman (now Ro) have not been doing as well, and have bad reviews. Part of the reason is they did not provide any service other than just shipping the medication.

There is a certain segment of the market that is hyper cost sensitive and will only be looking for the very cheapest medications. Some of those customers may opt for Amazon over HIMS. I believe the reason HIMS always emphasizes how many users are getting personalized solutions is because there is value in getting a personalized medication. This allows for proper dosage, proper form factor, and allows for compounded combinations of medications. Some examples,

  • on hair, some want topicals, other want oral medication
  • on ED, some want generics, others want brand name, some want mints, and some want a combo ED + heart medication
  • on weight loss, some want pills, others want injectables, and some want brand name Ozempic/Wegovy

From what I gather, Amazon is competing here on being the lowest cost provider of generics. It is not great news for HIMS they may lose some customers on this segment. However, the fact that Lilly, Novo, and now Amazon are coming after HIMS makes me view this industry as having a huge TAM, and that they see HIMS as a credible threat.

I see this market drop of roughly a third of HIMS value on this Amazon announcement to be a bit of an overreaction. However, it is a new huge competitor in the space who will definitely take away some customers over the long term so I trimmed my position a bit. I am also of the opinion I want to see how HIMS results play out over the coming quarters and see what HIMS says about the competitive threat. I don’t want to get scared out of every investment each time there is a new competitive threat announced.

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Really it’s a combination of a few factors. Yes, Amazon coming after the addressable market for HIMS is going to be a problem. There’s still a huge TAM, but certainly going to be some competitive pressures. I cut my position in half after that Amazon announcement.

Second, we’re seeing a lot of sector rotation away from pharma, which HIMS kinda gets lumped in with, because of RFK Jr being picked. Not to get super political, but if he achieves everything he wants to, there will be much less of a need from the products that HIMS provides. Realistically though, obesity in the US isn’t going away anytime soon.

Lastly, Powell deciding to hold rates steady for the time being, in addition to rising bond yields, is causing some negative pressure on the market here.

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I checked Trustpilot, HIMS has really bad reviews compared to Ro.

hims Reviews | Read Customer Service Reviews of forhims.com (25% 1 star)

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Interesting, I am not sure why TrustPilot has such vastly different review data than the Better Business Bureau. On the BBB, HIMS has 3.81/5 rating over 5,355 reviews. Ro has 1.28/5 over 59 reviews.

https://www.bbb.org/us/ca/san-francisco/profile/health-and-medical-products/hims-hers-inc-1116-880029

https://www.bbb.org/us/ny/new-york/profile/telemedicine/ro-0121-173581

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I think it would be worth seeing some research on correlation between BBB (or TrustPilot for that matter) ratings and business performance before using that in decision-making. In my experience, BBB is a way for angry people to file futile complaints, and a very old-fashioned way at that. I don’t know anyone who would even think to use it. It’s like Yelp from 1970.

Roman’s 59 mostly 1-star ratings align with that. I would be very suspicious that a company with thousands of positive BBB reviews is in some way incentivizing or paying for those reviews. This is a perennial problem for all review sites, but the rating for Hims seems especially egregious to me. Not an accusation, but I’d want to really do some diligence on that.

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Ratings are pointless now days when apps ask you if you like the app then ask if you want to review. If you don’t rate them high they don’t ask you to review them. My outside opinion is Ro sends people who rate them high to TrustPilot and HIMS sends them to BBB. Then the only other people who go out of their way to review a product are people who are extremely disappointed and are going to rate low.

A much better metric of customer satisfaction is return customer and/or customer growth.

Drew

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