Answering ALL Your Questions About Hims.
Update
Edited by Brian Birnbaum and an update of my original Hims deep dive.
Thanks a lot to all of you for submitting your questions about Hims on X! I’ve gone through all of them and will be answering the most frequent ones below.
Q: Does Hims have a moat?
A: Yes–modern moats are invisible to the untrained eye.
Hims is the first healthcare company in American history to print cash while operating outside of the traditional insurance-based healthcare system. The graph below shows Hims’ cash from operations having grown rapidly over the past few years. In my view, this is the result of vertically integrated infrastructure that’s extremely difficult to replicate.
Hims has amassed expertise in compounding personalized drugs at scale, marketing, optimizing the user experience, and navigating the regulatory landscape. Hims must leverage all of the above to improve patient outcomes per dollar spent on their behalf over time. Ultimately, Hims becoming a more convenient and effective solution for patients is what drives cash flow.
To put this into context, Spotify has fended off Amazon and Apple by optimizing the user experience and dealing with labels. Some people still think that Spotify has no moat–their rocketing free cash flow, depicted below, suggests otherwise. Despite the mountain of resources at Amazon’s and Apple’s disposal, Spotify’s focus on delighting end consumers in the music industry has formed a moat.
To the trained eyed, Spotify has a marginal user experience advantage, which , In the digital space, yields marginal superior network effects. As we see in so many areas, marginal gains over time lead to an exponential advantage, in this case with distribution.
Although Hims is a much younger company, I see a similar moat forming. Even for a company as big and powerful as Amazon, absent an exclusive focus on healthcare customers, it will be quite challenging to beat Hims across the various components of their vertical infrastructure. As you can see in the graph below, Hims’ stack is essentially Spotify’s plus personalized compounding. For this reason, I believe Hims’ moat may even be stronger than Spotify’s, given enough time.
Over the past few years we’ve seen Amazon make several attempts at gaining traction in the healthcare space, without much luck. We also saw Walmart recently close down their tele-health operation. While large companies fail to gain purchase in healthcare, Hims continues to compound its free cash flow per share as depicted below. Therefore, while I believe that the moat is still forming, it seems strong enough to support Hims’ weight.
Q: Why do you think Hims can become a trillion dollar company?
A: They are evolving into the healthcare industry’s platform.
In the future, industries will be dominated by platforms that have the most and highest quality data. Data will enable these platforms to create AI models that the rest of the industry comes to rely on. Per the chart below, Hims is launching new verticals at a rapid clip. And as evidenced by the rapid growth of the weight loss vertical, the rate at which they deploy and expand new verticals is accelerating.
More verticals for more patients yields datasets that enable Hims to understand the best treatment for any given patient. As Hims grows its verticals and subscriber base, its proprietary data will be used to train an AI model that legacy healthcare providers leverage to make their operations more efficient. Down this path, Hims becomes a PaaS for the healthcare industry, which I believe can carry the company north of a $1T market cap.
I’ve shared the graph below many times on X to illustrate how Hims’ infrastructure is unique. It’s the world’s first instance of a closed AI-healthcare-loop. While Hims may or may not become a $1T company, this infrastructure is set to continue enhancing patient outcomes per $ spent at an unprecedented rate. The data Hims generates allows them to immediately iterate on their infrastructure, making the service better.
Meanwhile, the rest of the industry is stuck in a low customer centricity approach, with a slow pace of iteration.
Q: What are the top KPIs for Hims?
A: Free cash flow per share.
The most important metric for me is free cash flow per share. What enables Hims to convert its stack into better patient outcomes per dollar spent is their ability to select new verticals correctly. Picking the right verticals translates into a higher free cash flow per share, and vice versa. As long as FCF/share rises, management is doing a good job and the business is becoming harder to replicate.
As I explain in my Tech Stock Goldmine course, financial metrics emit quite a bit of noise quarter over quarter. This is why a broader understanding of the business is important to correctly interpret the evolution of free cash flow per share. Ultimately, Hims’ business is about bringing in more subscribers, retaining them longer, and making more money per subscriber. It’s important to watch these metrics too.
At a lower level, the rate at which they grow their subscriber base is a direct function of how quickly they deploy and mature new verticals. Historically, it’s taken the company just under two years to grow a new vertical to meaningful scale. Hims scaled the weight loss business to 100,000 customers and a $100M revenue run rate within seven months of launching, thus achieving material scale within approximately one third of previous timeframes.
Q: What are the next verticals? Won’t the FDA GLP-1 ruling weaken the business? Why did they acquire a new peptide facility?
A: What matters is Hims’ improved ability to deploy and mature new verticals, not how any particular vertical performs over time.
I’ve grouped the above three questions because they all have the same answer: Hims is not any of its verticals, but rather a machine with the capacity to launch and mature a growing volume of verticals over time and faster. The greatest success stories of the past two decades, like Amazon, Netflix and Meta all have one thing in common: they are constantly taking new asymmetric bets. Hims is fundamentally the same.
In hindsight, most of their bets haven’t worked out. But a few have gone on to produce tremendous value, many times the losses of all failed launches combined. Similarly, Hims is constantly bringing asymmetric products and services to market for which the potential losses are relatively capped while the upside is infinite. While the market is fixated on the GLP-1 controversy, it’s but a subset of a much bigger picture: peptides.
GLP-1s are a microscopic element within the universe of peptides. There’s no palpable limit to the number of human ailments that peptides can cure. I’ve personally tried a few of them with great success. Thymosine Alpha 1 has restored the balance of my immune system following a vaccine injury in 2021. Thymosine Beta 500 has enabled me to recover from musculoskeletal injuries that were resistant to any other approach. Epithalon has greatly improved the quality of my sleep.
Peptides are simply chains of amino acids that form specific shapes. Once you inject them into the body, their shape determines how they work in the body–hence the saying form equals function. Many ailments can theoretically be fixed by injecting peptides of a specific shape, which in turn perform a specific function.
As AI improves and enables us to understand which shapes (or combination of shapes) cure which illnesses, this is likely the beginning of an enormous opportunity for Hims, illustrating the case for their purchase of a peptide manufacturing facility in the US. They see the strategic value of continuing to integrate vertically in order to best capitalize on the opportunity peptides present–which itself is far larger than GLP-1s alone.
Q: What is Hims’ biggest obstacle/challenge?
A: Achieving an MAD (mutually-assured-destruction) situation with Big Pharma.
Hims has positioned itself at the top of the funnel in the healthcare industry–much like Spotify in the music industry. Although great for patients, it positions Hims to clash repeatedly with Big Pharma. Until now, Big Pharma has enjoyed uninterrupted distribution, with low elasticity on the demand side. Hims puts this at risk by setting the industry on a deflationary path.
I believe the GLP-1 dilemma will be one of many such confrontations. Big Pharma will fight every deflationary event. With the advent of peptides, we can expect such events across the healthcare industry writ large. For example, Thymosine Beta 500 is quite cheap and threatens the status of many musculoskeletal drugs.
Therefore, Hims’ major challenge is achieving a situation of mutually-assured-destruction with Big Pharma as Spotify has achieved with music labels. Until then, Big Pharma will continue to push back as they are doing with GLP-1s at the moment. However, my view is that Hims’ management has an exceptional ability to navigate the complexity of the healthcare industry. And that is why I remain comfortable fully delegating to them.
Q: Can Hims grow internationally? If DOGE makes the US healthcare industry more efficient, does this disrupt Hims?
A: Hims management excels at identifying customer pain points and capitalizing on them–which makes international growth as feasible as domestic growth.
I’ve grouped the above two questions together because the answer is the same: Hims management has demonstrated an ability to understand the key pain points of patients in the US healthcare market, and this underlying skill allows them to replicate, extrapolate, and exponentiate their operation. Should DOGE move the goalpost, I believe Hims management is nimble enough to adapt. Similarly, I believe Hims management will be able to spot the key pain points in international markets and capitalize on them.
Meanwhile, Hims continues to compound the scale and efficiency of its platform. This makes it harder to replicate them profitably, even if such a hypothetical organization manages to focus on reducing costs in the healthcare industry. This adds additional leverage to management’s judgement–international expansion will be easier once they’ve perfected the blueprint to deliver personalization at scale, anywhere.
Lastly, the growth opportunity in the United States alone is tremendous, with hundreds of billions of dollars up for grabs. While TAM does not translate into opportunity to nearly the degree that most investors believe, we can see that international expansion isn’t necessary for explosive growth, particularly for the medium term.
Q: How do I overcome my Teladoc PTSD?
A: Focus on the fundamentals.
I last reviewed Teladoc in Q2 2023, and my conclusion was that the company was not focused on the end customer. They had a privileged healthcare data faucet as a result of signing deals with more than 50% of the Fortune 500 companies. However, in reading the Q2 2024 conference call transcript, it was evident that Teladoc management had no idea how to leverage that data to improve patient outcomes. Hims represents the counterfact–their data advantage is the result of identifying and solving patient pain points.
In the stock market, it’s tempting to reason by analogy. But the only way to truly make money is by reasoning on a first principles basis and, oftentimes, betting against the crowd. At a superficial level, Hims seems similar to Teladoc–but in reality these are two radically different companies.
In March 2024 I wrote a piece breaking down three investment mistakes. They all stemmed from not buying business that were solving a growing volume of acute customer pains in a way that’s increasingly harder to replicate profitably. To me Hims is an excellent example of such a business, while Teladoc is the antithesis.
Q: Why does Hims have a high CAC (customer acquisition cost)? Does the TV ad ban affect the company?
A: Hims started with stigmatized conditions, which don’t generate word of mouth marketing.
Hims got started by selling stigmatized solutions for men, among others–conditions and treatments that people don’t enjoy telling their friends or family about. This forced Hims to rely heavily on paid marketing. However, as Hims branches out into less stigmatized conditions, the company is beginning to exhibit marketing leverage. In Q4 2024 marketing expenses as a % of revenue were down 2% as a result of increasing word-of-mouth.
I believe we will continue to see further leverage per annum as Hims deploys more verticals. Once it provides a solution for any common health ailment, I believe we will see considerable word-of-mouth and notable marketing leverage.
Further, RFK banning pharma ads on TV could impact Hims’ business negatively in the short term. However, one of the reasons I decided to go long the company last April is that the management team has an unusual ability to optimize paid marketing spend. They are capable of allocating marketing dollars wherever they yield the highest return, which is why I think a TV ad ban would not be terminal. I believe Hims management would find viable alternatives.
Q: What is a fair price to sales ratio for Hims?
A: I believe somewhere between 10 and 20. But I wouldn’t invest in a company based on a hypothetical multiple expansion alone.
Hims’ total revenue grew 95% YoY in Q4 2024. A company growing at this speed deserves to trade at a much higher price to sales multiple than Hims does at present, in my view. However, I would not invest in a company based on this hypothesis alone. We can’t control what multiple the market assigns to a given stock, but if the company in question continues growing rapidly, a higher valuation is only a matter of time.
I’ve said many times on X that stocks track free cash flow per share over the long term. If Hims continues deploying and maturing new verticals at the current rate, free cash flow per share is set to grow exponentially. If on top of that the market wishes to assign a higher valuation multiple to Hims, that’s an added benefit to Hims investors. As we saw with Spotify, the increased multiple came with proven profitability, and I believe this may be a similar case given the analogous circumstances.
I hope you guys enjoyed this post, with a slightly different format. Thanks a lot again to everyone for submitting their questions. I hope that you found my answers useful.
Until next time!
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You can also reach me at:
Twitter: @alc2022
LinkedIn: antoniolinaresc
Did you listen to recent Hims CEO interview by Hims House? He mentioned some new verticals: Pain Management, Hormonal Balance, Longevity and Cardiovascular disease
I like the Spotify parallel you referenced. Makes sense