Hims & Hers Health, Inc.

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

Hims & Hers Health, Inc. operates a telehealth platform offering a range of personalized health and wellness products, primarily focusing on areas such as men’s and women’s health, mental health, and dermatology, directly to consumers.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Hims & Hers Health, Inc. (HIMS), is a technology-driven healthcare company that provides access to healthcare and products through its online platform. The company has two main business segments, the online and wholesale revenue segment.

  • Online Revenue: The company sells healthcare products and services directly to consumers through its websites and mobile applications. This segment includes consultations, prescriptions, and the sales of branded and generic medications. The primary focus is on direct-to-consumer healthcare for common conditions.
  • Wholesale Revenue: Hims & Hers also collaborates with other partners in healthcare sector in order to offer products. It may include sales to affiliate pharmacies, other online marketplaces, or directly to other retailers who may want to buy those products at a wholesale price.

Hims & Hers uses telemedicine to provide convenient access to healthcare, bypassing the traditional healthcare system which creates easier access, and may lower costs for certain consumer. The company leverages its platform to provide personalized solutions for a range of health and wellness conditions. It focuses on a number of key areas like:

  • Sexual health: Hims provides men with treatments for erectile dysfunction, premature ejaculation, and hair loss, while Hers focuses on women’s sexual health needs.
  • Mental health: Both Hims and Hers offer treatments for anxiety and depression, often incorporating personalized care plans that involve prescription medications and support.
  • Dermatology: The company sells treatments for acne, skincare and other dermatological conditions.
  • Personalized products: Hims & Hers are very rapidly growing in the area of personalized products and treatments, often making use of AI. The use of AI is intended to improve the overall customer experience, making recommendations for products and making the platform easier to navigate.

The business model is centered around generating recurring revenue through subscription services and repeat purchases, with an emphasis on personalized care and convenience.

The telehealth industry has shown significant growth in recent years, fueled by technological advancements and increasing consumer preference for convenient and accessible healthcare options.

  • The pandemic has accelerated the adoption of telehealth, as has also a growing need for mental health treatment.

Key industry trends include the increasing use of digital platforms for healthcare services, the growing demand for personalized medicine, and the rise of direct-to-consumer healthcare.

The competitive landscape is diverse and includes established telehealth providers like Teladoc and Amwell, as well as brick and mortar pharmacies which provide similar services. The main competitive factors are the variety of healthcare services offered, the ease and convenience of the platform, and the cost of treatments.

Hims & Hers’ key competitive advantage is its “vertically integrated technology platform” (as stated in their recent 10-K report). They have been investing to make their platform more personalized and easily customizable. This helps customers feel like they can connect with healthcare providers who will understand their specific needs and requirements.

  • This approach allows customers to have access to doctors online who treat them based on their specific profile.

Financials

Here is a detailed overview of Hims & Hers’ financials. Please note, I will mainly focus on the most recent 10-Q report and will only refer to the other ones to show long term trends, if necessary.

Hims & Hers Health, Inc. Q3 2023 Results

  • Revenue: Total revenue grew 57% YoY to $226.7 million with online revenue at $219.4m (up 61% YoY) and wholesale revenue at $7.3m (down 28% YoY).

    • Online revenue has grown more than 20% YoY for 11 consecutive quarters.

    • Growth was driven both by increased subscribers and expansion into new product categories.

    • Wholesale has started to stabilize, but they still see a substantial opportunity for this to grow. They plan to focus on more high-volume partnerships to improve.

    • Management expects to see the benefit of new personalized and specialized offerings to drive the wholesale revenues up in 2024.

  • Gross Margin: Gross margin increased to 83% (up from 75%). This expansion is primarily due to leveraging their supply chain infrastructure, better economics on supply chain partnerships, and decreased marketing costs.
    • These factors are mainly contributing to profit.
  • Operating Expenses: Operating expenses were $201.1 million and increased by 46% YoY. However, operating expenses as a % of revenues decreased from 103% to 89% YoY, because the company is generating more operating leverage.
    • Marketing expenses were $125.8m, but as a % of revenues, declined to 56% vs 65% in last year’s Q3.
  • Adjusted EBITDA: Adjusted EBITDA was $12.2m compared to -$19.4 million in 2022. This means the company’s profits are improving considerably with a positive result after many quarters of losses.
    • Adjusted EBITDA margin reached 5.4% in Q3 2023.
  • Cash Flow: Hims is cash flow positive in Q3, which is a big step towards profitability. The company generated $18.9 million of operating cash flow, which included $6.3 million from operations and $12.6 million related to stock-based compensation.

The company’s long-term goal is to achieve positive EBITDA and cash flow while maintaining strong growth. They are very close to reaching this goal.

In short, Hims has shown considerable improvement in its financials recently with a big increase in revenue, profits, and margin.

Earlier Trends

Here is the trend of main financial indicators of the company in past years, as noted in 10-K annual filings.

  • Revenues: Revenue growth has been rapid, reflecting the increasing adoption of telehealth services. From 2019 to 2022 Hims’ revenue has grown from $27.2m to $526.1m.
  • Gross Profit: The gross profit margins are consistently improving because of higher pricing power and a better supply chain. In 2022, it has a gross profit margin of 78.8%.

  • Net Loss: Company has been running at losses so far, because of high operating expenses. But the net losses are improving YoY. In 2022, it had a net loss of $236.3m, which is better than $458.9 million in 2021.

  • Operating Expenses: While Hims’ revenues have grown at a decent clip, its operating expenses have also increased considerably, reaching $657.8 million in 2022.
    • This means that profitability is a major concern.

Balance Sheet Health: Hims has been improving its balance sheet in recent years.

  • Cash: In the Q3 2023, the company had cash and cash equivalents of approximately $203.9 million.
  • Debt: The company has $221 million in long-term debt.
  • The company is also increasing its inventory of their products, which may add some pressure to cash flows.
  • The amount of accounts receivable has been decreasing YoY, indicating better efficiency in cash collections.

Short Term Concerns

  • Despite good recent performance and financials, management still has some key challenges in the coming months and quarters.
  • They are facing headwinds in customer acquisition spending, particularly due to a recent decline in spending on social media ads.
  • In addition, the company is going to see some pressure on revenues with lower sales from the wholesale channel. But management believes that their higher quality partnerships in this area can offset some of these pressures.
  • Another key concern is the growing costs of fulfillment services and other expenses involved in distribution. This will also create pressure on profitability. However, management believes that improving internal efficiencies can help.

Moat Analysis

Hims has some competitive advantages, but its moat can’t be considered very wide at the moment.

  • Brand Recognition: Hims and Hers have built strong brands, especially among younger, digitally native consumers. The company’s unique brand name has been a vital point in attracting customers. But while the brands are popular in some areas, they still don’t exert too much pricing power over competition.

  • Proprietary Technology Platform: Their platform is designed for customization, and it allows them to provide personalized products and care. This feature is unique to them, and hard for other companies to replicate. They are constantly investing in this to make it even more appealing. But the technology is easily scalable, and is not hard to replicate.

  • Low Customer Switching Cost: Once users are subscribed to their products and services, they will find a degree of inertia involved in switching. However, it doesn’t provide too much of a competitive advantage, and customers are very price sensitive.

Therefore, I will rate the moat a 2 out of 5. A narrow, but not a wide moat, and the company has potential to improve it in the coming years by strengthening its competitive advantages.

Risks to the Moat

  • Competition: The telehealth sector is intensely competitive. The emergence of new players and aggressive competition from existing companies can threaten their position and erode their pricing power.
  • Technological Change: The rise of new companies with new technologies may outcompete Hims if it fails to adapt.
  • Regulatory Hurdles: New regulations in healthcare and medicine could disrupt Hims’s operations, for example it could hinder some of the prescription or delivery practices, or make operating in specific geographical areas difficult.
  • Customer Acquisition: Increasing costs related to marketing may impede customer acquisition and profitability.

Understandability

The business is relatively easy to understand on a high level, as the company acts as a platform to connect consumers with doctors and sell them relevant products. However, the various intricacies of the healthcare regulations, drug approval, and pharmaceutical market dynamics makes it hard to fully understand and analyze the business. I will rate the understandability of Hims a 2 out of 5.

Balance Sheet Health

Hims’s balance sheet has improved over the past few years, but it still has high expenses and considerable debt. However, given that its cash flow and profits are improving drastically, I would say its balance sheet is moderately healthy but not fully healthy. Therefore, its balance sheet health is 3 out of 5.