Reintroducing Hims & Hers Health (HIMS)

It’s been a few years since there was a thread on HIMS and I believe this company has turned a corner in their growth story having reached GAAP profitability in the last quarter. A number of other metrics such as revenue, Adj EBITDA, payback period, and gross margin are improving.

Starting with what they do, they are a tele-health provider that sells generic drugs to consumer at reasonable prices. They have a number of personalized solutions that are available in dermatology, weight loss, sexual health, and mental health. Doctors work directly in the app with consumers and approve medications, and it varies by state what is approved for tele-health. For example, some states allow the weight loss medications while others do not. HIMS is partnered with a number of pharmacies to get have a supply chain advantage, which they use to leverage and get an 83% gross margin as of the last quarter.

The advantage of these products is a consumer can go to their app without health insurance and get products a reasonable price. Many of the products come in form factors that are more appealing than taking a pill, such as mints. To get an idea of some of their more recent innovations they are shown here,

The company lists four strategic pillars which are a trusted brand, leading technology, innovative products, and clinical experience via doctors and pharmacies.

The company is also rapidly gaining market share in the category, as seen on this market share graph.

A number of financial metrics are trending very well with net income just having turned positive, gross margin at 83%, revenue growing at 45%+ the last number of quarters, EBITDA metrics improving, and subscriber growth.

From their last Q4 earnings call there was a lot of positivity and some standouts in the commentary were,

  • Growth remains robust as a result of ability to draw and retain users
  • 1.5M subscribers, 48% growth yoy
  • first quarter of positive net income, a year ago was first positive Adj EBITDA
  • Hers dermatology subscribers are opting for a personalized solution more than 75% of the time, while subscribers to the new weight loss offering are essentially all opting for personalized treatment
  • 85% of fulfillment is to affiliated pharmacies, can pass cost savings onto consumer
  • Over 35% of new subscribers are pursuing personalized options in Q4
  • Maintaining the low ~15% or so of non-affiliated pharmacies for redundancy purposes
  • Affiliated pharmacies allow to drive efficiency across key costs such as logistics, product costs, and even customer support
  • Gross margins expanded almost 4 points yoy to 83%, capturing efficiencies
  • Mass market pricing, combined with end to end convenience are cementing a leadership position
  • Adj EBITDA increased 68% qoq, to almost 21M
  • Generated 73M of operating cash flow, FCF of 47M
  • Will improve efficiency of affiliated pharmacies
  • Emerging categories of (weight loss) are “really exciting”, seeing “massive adoption” of personalized offerings and custom treatments
  • Vast majority of spend goes towards acquisition of new customers
  • Platform getting even stickier than historically was
  • Products are a very cost effective price point
  • Stronger guide based on step up in new categories
  • Hers dermatology, weight loss, “show exceptional signs of momentum”, “stickiness of relationship”
  • Rolling out MEDMATCH or multi-condition treatments
  • Weight loss will be a massive contributor to growth, very encouraged by early signs
  • Higher LTV on each individual user where retention is going up
  • We don’t aim to bring 500k new subs on the platform, we aim to bring 5M to 10M new subs
  • Can unlock more scale and efficiency onboarding more customers, and give better deals back to the customer
  • Automating more from scale by getting negotiated rates across supply chain ecosystem
  • See pathway to tens of millions of customers (currently at 1.5M)

Concluding, I wanted to add a small commentary on price of the stock that while all these metrics and success have occurred, the price is still below it’s 2021 highs. Q4 2021 revenue was 85M with a share price of $20, and current Q4 2023 revenue is 246M with the share price ~$15. I am liking that the market picked up on the success of this last earnings report and their now seems to be some momentum around the company as well.

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I really, truly appreciate you bringing companies to the board and writing them up like this. I think we are in need of some “new blood” around here – and I personally am in need of some new blood in my own portfolio. The difficult thing (to me) is that we have always tried, I think wisely, to set a pretty high bar for what constitutes “a good company.” And I believe that when I have loosened those standards in the past, that’s when I’ve lost my way, say with something like AEHR. Also something like BILL reminds me that this is not a static definition – I may have dubbed BILL a “quality” company at some point, but we need to always keep asking ourselves if things are changing for them – and things did change for BILL! Even if it is a “quality” company, it’s a struggling one. It’s been a similar experience with Snowflake and Datadog which are still down from where they were 2 years ago, and even more down from where they were 3 years ago, so “quality” is anything but a silver bullet. It also depends on (for example) what the market is expecting – and if the market expects to much, the price might be too high. I feel like a lot of “quality” companies are expensive right now, so I’d rather have a small or mid-sized position in them (if any position). Believe it or not, I’d rather find new possibilities instead of holding cash…but I don’t want to go into low-quality companies. I’ve been struggling to figure out how to handle this. Perhaps I do need to broaden my scope…I just want to be careful not to lower the standards too much. So I am truly open to finding some new companies.

HIMS, with almost 900m in annual revenue and profit seemingly starting to fall to the bottom line, seems to have a lot going for it from a numbers perspective. However, to boil everything down to my #1 question mark, the sharp deceleration is a bit concerning. They seem (similar to what some have pointed out with MNDY) to be stuck in a range where they can’t seem to add more than a certain amount to quarterly revenue. The last 5 quarters that’s been around $20m each quarter. In Q3 of 2022 it was more – $31m. (I wonder if there was an acquisition or something juicing revenue in that quarter?)

Note that this chart begins with the most recent quarter on the left. The other thing I notice is that the marketing spend keeps growing, but seemingly with diminished returns in revenue growth.

The other thing about this company, and the reason I waxed on about quality above, is that it reminds me of Teladoc. What I learned from that company is that providing healthcare outside of the traditional models…is just a tough business. I always applaud entrepreneurism, but I worry this might not be the most attractive industry for it. There’s a trust aspect with doctors and patients, so it’s not just about convenience or the price. It’s a pretty heavily regulated industry, and medical insurance and payment strategies always complicate things. This kept me from looking into HIMS until now.

What are your thoughts about the both the deceleration, and also my qualitative concerns?

Again, thanks a million for bringing this new company (and others!) to the board.

Bear

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Thanks @PaulWBryant for the detailed feedback! It’s also super useful for me to get critiques of the companies I am posting about, or see if there is enthusiasm there from other board members.

The net revenue add numbers posted along side the marketing expenses do raise some concerns from me. I had not seen the data posted in that way before, and it could be partly because a lot of my graphs were coming from company presentations where the graphs may be tailored to show accelerations only.

I had seen that revenue growth on the year over year comparisons had come down some to 47.5% this quarter from previously higher numbers.

For sales and marketing expenses, I would also expect net revenue to be going up incrementally with spend. One interesting comment from the last conference call was this blurb from the CFO,

The vast majority of our spend goes towards the acquisition of new customers. And so as a result, as we continue to build a larger and larger base of existing users that are tenured on the platform, that inherently results in more leverage. And so what we are seeing is that particularly with personalized products and some of the pricing changes that we made lasts year, the platform is getting even more stickier than it historically was.

The question to me is what the CFO is saying here is actually lining up with what we are seeing with the raw numbers. It doesn’t sound like HIMS is getting the same marketing ROI that an ELF is for example. At the same time, once someone becomes a customer it sounds like they are staying around longer. This is possibly a result of the product innovation and personalization that the platform has.

One other useful critique of the company I had seen from @wsm007 was with regards to operating margin. Actually when I look at this graph though I’m fairly encouraged that this recent quarter saw an acceleration here, even though it’s to just reach 1%.

What I am really counting on from this company is that this quarter was not just a one off quarter, and that the next quarter continues to show these bottom line accelerations while at least maintaining a 40%+ revenue growth rate.

From what I can gather the affiliated pharmacies are the catalyst that is providing the improved bottom line numbers. Some of these QoQ comparisons are quite impressive like Adj EBITDA going up 68%! It remains to be seen though if having affiliated pharmacies is just a one time bump up, or continues to drive leverage. It also remains to be seen if customers they add stay around and churn is low. From what I see they don’t provide churn numbers.

With regards to this company being like Teledoc that was also an initial concern I had too given how that business has gone. I do see HIMS having much more potential in the tele-health space as they get past regulations on certain classes of drugs such as new GLP-1 weight loss drugs. Here’s something they said about their platform with regards to this new market,

We’re pricing that in the range of $70 per month, which is a simple cash price that has the holistic care of the platform, the obesity specialist access, constant interaction, and adjustments to your treatment as well as the personalized compounded treatments delivered to your door. So we think it’s an incredible value. We the the holistic offering, including the mobile application and the content is really compelling and has a lot of efficacy… ultimately this category is going to be a massive contributor to growth. I think we are very encouraged by the response thus far that allows us to say that.

So another assumption I am banking on is that new classes of drugs and regulatory approvals boost revenue over the long term. Note that what’s approved is on a state by state basis.

Since I’ve only been investing in this company for a few months a lot of my conviction going forward is going to be based on the next earnings reports and what metrics are shown there.

Lastly I’d add that valuation seems reasonable. HIMS isn’t a company which is growing quite as fast as the other consumer companies I am invested in like CELH and ELF but it’s price/sales is much lower. Here are some graphs to with P/S, and note that CELH was somehow able to maintain a 30+ P/S during 2021.




Just to add some general thoughts on the theme of finding high quality companies…

I was also investing in AEHR which seemed to have a lot going for it. The biggest thing overlooked by the board was the customer concentration in Onsemi meant it was completely reliant on the results on another company. When I bought into Aehr I was unaware of their customer concentration, it was just a metric I wasn’t exposed to. Sometimes one metric like customer concentration can change your whole perspective on a company. Even after learning this about this metric based off what the CEO saying I expected this customer concentration number come down significantly, so I didn’t sell right away.

The complete enthusiasm of the CEO on the call about a year ago convinced many of us it was a buy. The lesson I took away from that was to make sure the conference call enthusiasm is really backed up by concrete numbers. That being said, I do think this was a rare case of a somewhat delusional CEO where reality didn’t match up to what he was saying.

With regards to Monday, I actually have been selling them not because of net revenue adds, but because there were a fair amount of pessimism with regards to macro and the analysts seemed confused on the low guide.

For finding high quality companies I would say realistic enthusiasm is a must for the companies I am looking for. This might make my style a bit more “story” style than others, but I really like the what HIMS is saying on the last call even if not every number is accelerating right now.

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Tough to use a P/S ratio to justify HIMS vs CELH or ELF - obviously in hindsight 30 was actually extremely cheap for the growth CELH has had since 2021. On the other hand, it’s tough for a niche health platform with no switching costs to keep its customers. HIMS is spending 50% of its revenue each year on marketing expenses - it’s worked so far, but how many more customers can they reach? And do they have to keep that marketing spend to keep existing customers? (reminder that often times marketing expenses reflect discounts on products and not just expenses to attract new customers) There are only so many potential users for its target market.

Further, it’s tough to have to compete on price. There are so many ways nowadays to get your hands on ED/hair loss drugs - without brand recognition it will be tough for HIMS to raise prices and their margins.

Consumer brands like celsius or elf have completely different psychological effects on its customers imo, and the total market is magnitudes bigger than HIMS. To me the current valuation reflects the market belief that both the terminal growth rate opportunity for HIMS is low and the opportunity for margin expansion is limited. Of course, the market could always be wrong, and if HIMS is able to accelerate back above 50% and get further operating leverage, it can turn into a real winner.

This just simply isn’t true - the issue was raised again and again from the first moments saul put it in his portfolio and was hand waved away. One of the reasons he (and Bear) mentions not to strictly follow his actions. jonwayne even laid out what could happen in his post (I mention an example here as well)

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Tough to use a P/S ratio to justify HIMS vs CELH or ELF - obviously in hindsight 30 was actually extremely cheap for the growth CELH has had since 2021. On the other hand, it’s tough for a niche health platform with no switching costs to keep its customers. HIMS is spending 50% of its revenue each year on marketing expenses - it’s worked so far, but how many more customers can they reach?

They say themselves they expect to scale from their current 1.5M customers to 10M+ customers.

The switching costs from a customer getting out of ELF or CELH is even smaller than in HIMS. What is the switching cost from choosing a different energy drink, or makeup at the shop?

HIMS still requires a KYC process to go through and other validations, which is more then it takes to buy Celsius or Elf makeup.

There are so many ways nowadays to get your hands on ED/hair loss drugs - without brand recognition it will be tough for HIMS to raise prices and their margins.

They have innovations such as providing the form factors in mints, combinations of different customized drugs, and still getting this regulated. Again not seeing much difference from comparing to Celsius or Elf which are just selling different varieties of energy drinks and makeup.

What I meant is the by the time the customer concentration issue was raised, or I found out about it, I had already invested. My first purchase of AEHR was on May 5, and the first post you are linking to is from May 24. Kudos to you for pointing that out early on because it was a key factor why they haven’t done well.

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The difference is for consumers, energy drinks and and makeup are a part of identity - it’s very tough to switch a customer from a brand they identify with in their everyday life. HIMS is not a brand, they sell generics, and Bear’s comparison of Teladoc is a good one. Whether you go to a convenience store, grocery market, or, increasingly, many different restaurants, you will find celsius there. Whether you order from online, go to CVS, or a beauty store like Sephora/Ulta, elf will be there.

When you want male care drugs, you’re just looking for the best deal/stuff that works. People are not going to be brand loyal to viagra or cialis, for example. And they were not loyal to Teladoc over say, Doctor On Demand, for example, and later on when BCBS and other giants launched its own platforms, competition was even worse.

Once upon a time a similar company called GoodRx was touted around some parts of the board. Same deal - a platform that sells memberships to customers who then get better deals on drugs. It’s still down 80% from the highs, though they have advanced 26% YTD. HIMS has done much better this year, at 60%+, but the growth numbers are already slowing down, and I’m just skeptical it’ll be able to come anywhere close to the 10M subscriber count they tout.

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I agree; I think about it this way:

  • Some types of marketing, if successful, give you a Gross Margin advantage.
  • Some types of marketing, if successful, set you up for a Gross Margin DISadvantage.

Coca Cola is an example of successful marketing campaigns that have resulted in a Gross Margin advantage: people really do buy the “Have a Coke and a Smile” marketing, and thus will pay a crazy markup for what amounts to sugar water with some bubbles and caffeine.

How about $ELF’s marketing? ELF marketing combines an appeal to identity and empowerment with a direct call-to-action: to get onto social media and discuss ELF with hip, cool, like-minded, beautiful people! That’s kind of marketing that (IMO) gives a Gross Margin advantage, never mind that their stuff costs less; price is barely mentioned on the front page of elfcosmetics.com

  • “welcome to the beauty verse”
  • “Where everyone can own their beauty, without compromise.”
  • " #elfingamazing "

I think $HIMS’ marketing results in a Gross Margin DISadvantage. How is that possible? Well let’s look at the marketing right at the top of hims.com

  • “Convenient, quality care”

…that means that ANYONE who can claim “Convenience” and “Quality” can go head-to-head with $HIMS’ marketing! Race-to-the-bottom HAS TO be the inevitable result.

It’s the same dynamic that keeps (for instance) blue-collar contracting businesses touting “quality and convenience” limited to virtually identical profit margins.

How is the “quality and convenience” $HIMS touts NOT going to be considered a commodity, especially in the long run?

I don’t think many people really consider hospitals to be $HIMS’ competition. Their competition is other companies that do what HIMS does. And what HIMS does is pretty easy to replicate.

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  • Some types of marketing, if successful, give you a Gross Margin advantage.
  • Some types of marketing, if successful, set you up for a Gross Margin DISadvantage.

I think $HIMS’ marketing results in a Gross Margin DISadvantage.

I am not comprehending how ELF has a gross margin advantage over HIMS when ELF’s gross margin is 71% and HIMS gross margin is 83%.

Are you saying ELF’s marketing is better for gross margin then HIMS’ marketing is?

Their competition is other companies that do what HIMS does. And what HIMS does is pretty easy to replicate.

HIMS is literally the only company on the market offering a regulated (or even unregulated) mint for ED. If you search for “ed hard mint” or a variety of other related search terms they are the only product coming up from Google.

They offer three different prescription combinations as detailed in this article from Nasdaq.

I’m not buying that this product is “pretty easy to replicate” when it’s not even possible to find a similar product in searches.

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This did have me excited however I went back to check on the current approval status for oral GLP-1 format and apparently it has been available in the US for a while. So how come this hasn’t showed up in the numbers already? Diabetes T2 and Obesity patients have already been mostly diagnosed.

Also - I couldn’t help but feel that the $70/patient/month sounded off. When I checked on the actual GLP-1 prices this is what I found…

“ At the time of this writing, the published average wholesale price (AWP) for oral semaglutide was $30.89 per tablet (all doses), equating to a monthly cost of $926.92 (9). It should be noted that the listed AWP does not account for discounts, rebates, or other price adjustments often involved in prescription sales that affect the actual cost incurred by patients (2). As a basis for comparison, the published monthly AWP price for oral semaglutide is the same as the published monthly AWP price for the once-weekly injectable semaglutide formulation (Ozempic) (9).”

So effectively the $70 isn’t for the new GLP-1 meds but for some generics or it is for the companion service. If for the companion service then assuming they charge the actual meds of $929 at cost then the available Gross Margin of the companion service is going to be way less than 10%.

Factor in that the GLP-1 producers have a manufacturing and supply issue and are encouraging use in only the patients most in need, then I can see HIMS being constrained by supply.

Just some thoughts on what could clearly be the most attractive element of this story.

Ant

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Currently approved GLP-1 agonists for type 2 diabetes and/or obesity are peptide-based and given by subcutaneous injection or orally. No oral GLP-1 agonists are currently approved for obesity, and only one, oral semaglutide (Rybelsus, Novo Nordisk), is approved for type 2 diabetes.

Andy

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“I am not comprehending how ELF has a gross margin advantage over HIMS when ELF’s gross margin is 71% and HIMS gross margin is 83%.”

That’s correct, and my apologies for my incorrect terminology. As you’ve noted previously, advertising costs aren’t accounted for in Gross Margins. I need to switch to “Return on Marketing Investment” or some such.

My point is some marketing is effective in generating leveraged ROI because it sticks with Customers’ self-Identity (Coke, ELF), some Marketing is effective because it generates rapid word-of-mouth advertising (Facebook, Netflix). In contrast, HIMS’ marketing appears to me to be linear: they have to keep spending because their product is not sticky, there’s a low moat and not much word-of-mouth. And this all boils down to a lot of churn.

It’s easy to get customers, if you throw enough money at marketing. But if it’s not getting you a ROI, due to customer churn, what’s the point? What is their path to get off of the marketing treadmill?

“HIMS is literally the only company on the market offering a regulated (or even unregulated) mint for ED. If you search for “ed hard mint” or a variety of other related search terms they are the only product coming up from Google. They offer three different prescription combinations as detailed in this article from Nasdaq.”

I could definitely be wrong, but none of that seems compelling enough to me to drive profitable hypergrowth. Who knows, maybe it’s a good enough first-mover advantage?

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Mint versus pill - meh . . .

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I think adjusting conviction as more numbers come out is smart. Yes, HIMS has a lower PS than ELF or CELH, probably because:

  1. HIMS grew 48% in Q4 vs 85% and 95% for the ELF/CELH
  2. ELF/CELH have been comfortably profitable for a while

Maybe there’s potential for a re-rating if HIMS can become profitable…it just seems that if I’m right and the marketing spend is seeing diminished returns, they have a difficult balance of trying to keep growing while trying to increase profits.

But there’s always a way any investment can go right. I certainly didn’t think Supermicro deserved to get re-rated up so drastically…so don’t take my negativity as definitive. I’ll be happy to be wrong…again…if that’s the way this cookie crumbles.

Bear

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Let’s make some assumptions to extrapolate this into next year. They initially guided for $755M in FY’23 revenue and finished the year with $872M (~16% beat). Let’s say next year they beat their FY’24 guide of $1.2B by half of last year’s beat - so just under 8%. That would put them at $1.296B.

To get there, they would need ~11% QoQ in the coming year, which would represent net-new revenue of $27M (Q1), $30M (Q2), $33M (Q3), $37M (Q4). This seems overly optimistic at first sight, but my assumptions don’t seem terribly unreasonable.

Assuming they simply meet their Q1’24 estimate, they will add ~$25M in net new revenue which will start breaking the consistent pattern you outlined, though there does appear to be seasonality involved with stronger Q4’s and Q1’s.

Your concern about marketing efficiency is valid, and it will be something to monitor in the coming quarters. On their last ER, they stated their goal for marketing as a percentage of revenue to be in the “mid-30s to low-40s by 2030” so at least its good to see management will be closely monitoring this too.

Let’s not forget Livongo was doing pretty well before the merger to Teladoc though. Also if we compare Teladoc to HIMS - Teladoc’s revenue increased from $2.033B in FY’21 to $2.602B in FY’23 (13% CAGR). Meanwhile, HIMS’s revenue increased from $272M in FY’21 to $872M in FY’23 (79% CAGR). Lastly, Teladoc was valued at >10x EV/S leaving little room for error, while HIMS is valued at ~3.5M EV/S (LTM).

It’s definitely important to keep this in mind, but similarly it’s worth remembering that HIMS is playing in an area where consumers may opt for convenience. Weightloss, hairloss and ED might be the niche where an online player like HIMS can succeed.

I don’t want to sound overly enthusiastic because many of the concerns raised on this thread are definitely valid. And expected returns are vastly different at February’s $10 price vs. today’s $14, but this is probably the company that has surprised me the most after I had dismissed it after 10 minutes of research a couple of years ago.

-RMTZP

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Exactly the point. TDOC had gone from 233m in 2017 to an astounding 2.03B in 2021. A 10x of revenue.

GoodRx went from 388m in 2019 to 745m in 2021. 2023? 750m.

My point is that revenue can run into a wall for these companies, and so when I see marketing spend yielding less increase in revenue, that’s a big flag.

Besides the tough industry dynamics, think about this: HIMS doesn’t actually create anything. If I were mean I’d call them a glorified drop shipper. They don’t make the pills they sell. Isn’t HIMS the definition of a commodity?

Bear

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Looking at these companies side by side for the current quarters,

TDOC: revenue 660M (+3% yoy), net income -28.9M, market cap 2.51B
GDRX: revenue 197M (+7% yoy), net income -25.9M, market cap 2.67B
HIMS: revenue 247M (+47 yoy), net income 1.2M, market cap 3.1B

In fact, TDOC has never has a single quarter in it’s history of having any net income. Seems like a differentiating factor that HIMS is able to get to profitability while these others cannot. My investing thesis relies on this continued bottom line growth along with subscriber growth. From what I can see the company sounds confident scaling up to at least 10M+ customers. Of course this is company market material, but if they are able to drive bottom line growth and get to this level of customers it will likely be very rewarding for shareholders.

They don’t make the pills they sell. Isn’t HIMS the definition of a commodity?

From what I mentioned above they are the only company on the market that offers these medications in the form of a mint and in the form of customized combinations of treatments. I believe they have exclusive agreements with the manufacturers of these form factors and designs, which also need to pass FDA regulations which they have done.

I’m trying to understand the differentiation between ELF and HIMS here from what you are saying. ELF relies on supply chains from China, but is the difference that ELF gets the raw materials and is actually producing the cosmetics in factories that ELF owns? I was assuming ELF also works with a similar manufacturer that they give specs to produce for them, but I need to do more research here.

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This makes a lot of sense. Some kind of metric of

percent increase in new revenue
------------------------------------------
percent increase in marketing spend

Diminishing returns would indicate either they have hit the TAM or hit competition.

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The slowdown in revenue in the second half of the year is largely due to the reduction in product prices. This will bring the benefit of increasing customer stickiness. Of course, on the other hand, it can also be said that it is due to competition and the need to respond by reducing prices.

From 2Q23 CC
Like I said at the start, our mission is to make the world feel great through the power of better health. An often underappreciated aspect of this mission is the necessity of ensuring our platform can reach as many people as possible. The level of scale that we have combined with the efficiency of our affiliated pharmacies enables us to orient users to a model with a treatment-based construct versus a pill-based construct at an exceptional value to them.

This will continue to become more meaningful as we move further away from subscribers with one treatment to subscribers with multi-category treatment. As part of this mission and our ambition to reach as many people as possible, we’re excited to share that in the past few months, we’ve begun to systematically lower prices for many of our longer-duration offerings to make our more personalized subscriptions even more mass market accessible.

*No position but researching

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Wanted to give an update on a few different threads and clarifications as they’ve come up,

Competition
Some of the names I’ve seen come as direct competitors are GoodRx, Roman, and Keeps. A lot of the articles you’ll find online comparing tele-health pharmacies will place these companies side by side. One website had an interesting row which was the Better Business Bureau rankings and here’s how they stack up,

BBB Customer Rating
Roman 1.3/5 (35 customer reviews)
Keeps 1.25/5 (67 customer reviews)
GoodRx 2.37/5 (180 customer reviews)
Hims 3.93/5 (3066 customer reviews)

Hims has exceptional ratings compared to it’s competitors in addition to having a much larger percentage of the market, and fanatical followers.

The reviews for Roman, Keeps, and GoodRx are typically in the category of complaining about chatbots, wrong prescriptions, poor support. While the HIMS reviews are focused on the problem that got solved and the quality service.

Affiliated Pharmacies
Here’s where HIMS has a massive competitive advantage. They completely own multiple pharmacies which are dedicated to HIMS orders. One is in Arizona and the other is in Ohio.

There was an acquisition in June of 2021 to acquire Apostrophe which had skincare or dermatology pharmacies. Apostrophe was a fully integrated mail order pharmacy that includes fulfillment and customer support. This streamlines the logistics which improve gross margins and improve order speed.

Marketing costs and customer acquisition
I’ve been able to gather that the customer acquisition cost is higher in tele-health than it would be for comparable consumer companies like and Elf or Celsius. The reason being that it’s a competitive market to advertise to folks who many need treatment for health conditions. A lot of these users could become long term customers for years depending on what condition.

A Forbes article mentioned that all of the public health companies took a beating in 2021 and 2022. The good news for HIMS is that many competitors dropped out of the field, and a lot of the remaining competitors are just low quality ones shipping generics without much else.

Insurance
Most of HIMS customers have insurance and this came as a surprise to me. I had suspected that much of their market was for the uninsured. It turns out the overall cost of HIMS is typically lower for medications even with insurance. When you combine the copay of the doctor visit and the copay of the prescription for a typical doctor visit it can be higher than ordering from HIMS directly. Factor in the convenience factor, and the privacy of HIMS, it makes for a superior choice on treating specific conditions.

Mints vs Pills
HIMS has quite a bit of innovation in their treatments especially comparing to their competition. For example, in hair they have a custom treatment which is Finasteride + Minoxidil in a chewable form. The chewable also contains other ingredients like Biotin which promote hair growth. This is their own custom and proprietary formula.

Minoxidil is for improving blood flow to hair follicles, and Finasteride blocks the production of DHT. These are two of the most effective treatments for male pattern baldness.

They are able to offer these combined form factors precisely because they do not accept reimbursements via insurance. There’s some laws around if you accept insurance, you can only have one prescription medication per pill or form factor. Since they don’t take insurance they can create custom formulas. Note that these custom formulas are not FDA approved but still go through a regulatory process, I’m looking to learn more about this part.

The chewable is preferred by their customers for hair loss because it suits people who do not want to apply daily topical treatments to their scalp, or take multiple pills. In this form factor they can take one citrus or mint flavored chewable and get results. A lot of the reviews from the BBB are favorable about the outcomes their users have had.

Partnerships
They company has a partnership with the American College of Cardiology (ACC) where they refer clients to HIMS for cardio vascular disease which offers them guidance and potential treatments without waiting months for a specialized doctor visit. HIMS has been getting into heart medications for a couple years now.

They have a partnership with Lapcorp to refer users who need lab work, and then the lab work gets uploaded to the HIMS platform.

Their products are in Brick and Mortars such as Walgreens and Target. Interestingly I haven’t heard much about this from conference calls or elsewhere. Still the bulk of revenue comes from online and their men’s segment. I’m still trying to find breakdowns of their revenue by products or markets, but looks like this info isn’t published anywhere.

I’ll update the thread if I am able to find those revenue by segment numbers or if any other interesting details of the business are discovered.

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Judging from the guidance, there were often cases of overdelivery in 2022, but the situation started to change in 2023 with only a slight beat in Q2 and Q3, and for the first time in Q4, there was no beat, only falling within the guidance. Here I think that future revenue may be more normalized, and there may not be cases of overdelivery.

I discuss subscription customers and customer acquisition costs together. In 2023, growth was 48%, but the net increase in customers in the recent three quarters has significantly declined, causing the customer acquisition cost for each new customer to rise sharply. The management mentioned 85%+ long-term retention (Online revenue retention from subscriptions with a tenure of at least 2 years.), which means that there may be a 15% customer loss each year. If the growth rate of customers continues to be sluggish, I suspect that marketing costs may not be able to achieve the future goal mentioned by the management of reducing marketing costs by 1%-3% each year. So either maintain or increase the ratio of marketing costs to revenue or find a more effective marketing method, otherwise, it is very likely that in the near future, the total number of customers may stagnate.




Regarding Key metrics, I combine three to look at it. The AOV continues to increase well, and the MOR per customer is maintained well, but the problem lies in Net orders. From a quarterly comparison, it can be seen that the slowdown in the recent three quarters is very obvious. If I look at it together with the number of subscribers, this means that subscribers tend to have larger orders, which makes the AOV continue to rise. However, looking at the MOR per customer, it maintains a certain range. This means that new subscribers tend to have larger orders, but old subscribers present a dilemma of cross-selling?

“Monthly Online Revenue per Average Subscriber” is defined as Online Revenue divided by “Average Subscribers”, which amount is then further divided by the number of months in a period. “Average Subscribers” are calculated as the sum of the Subscribers at the beginning and end of a given period divided by 2.




In conclusion, the statements from the management and figures either do not give me a good impression, so I will continue to observe for another 1-2 quarters to understand better.