Hims: Extraordinary Fundamentals in Q4.
Update
Edited by Brian Birnbaum
The odds of Hims increasing FCF/share exponentially over the coming years are high. The recent acquisitions promise to increase Hims’ earning power faster than the market expects.
Most of the payoff for investors will likely come in the outer years, as Hims evolves into a platform-as-a-service offering for legacy healthcare providers.
Hims management expects the weight loss operation to grow to $750M in revenue for 2025, excluding the commercial semaglutide. In turn, they expect the segment to be ‘primarily composed’ of the oral and liraglutide-based solutions going forward. In other words, the FDA shortage conundrum isn’t a concern for the growth of the business going forward. Management has demonstrated extraordinary executional capabilities. People tend to throw this phrase around lightly, but Hims management truly is playing 3-D chess while the rest of the industry and market participants play checkers. I have no reason to doubt them.
I did not emerge from the Q4 2024 earnings call with clarity on how Hims will manage the 503A exception with particular emphasis on semaglutide. However, it seems fairly certain that their plan for now is to continue offering a personalized form of semaglutide, when required clinically. Over the long term, this does present the risk of a meaningful litigation battle with big pharma.
However, I am comfortable fully delegating to the management team the task of mitigating any potential damage in this arena. The only thing we need to manage as investors is the ensuing volatility. Potential litigation injects uncertainty, or at least the appearance of uncertainty, which the market tends to discount heavily into stock prices.
Revenue is up 95% YoY and 43% YoY excluding GLP-1 revenue. Hims achieved in 2024 the revenue they guided for 2025–a year early and excluding GLP-1 revenue–with total revenue coming in at $1.5B for the year. For 2025, they expect revenue to come in between $2.3-$2.4B, which I believe they will surpass handily. With Hims trading at $36 as I am writing this, down over 47% over the past week, the company is priced at just 3.6X forward sales.
A business growing at this pace and led by such a talented management team likely deserves a far higher valuation multiple–more in the range of 10-20X sales. In turn, I believe that management is likely to continue outperforming over the years, which I suspect will make the current valuation look even more attractive in hindsight. I took advantage of this asymmetry by buying an additional 857 shares.
As CFO Yemi Okupe explained, the “vast majority” of Hims’ revenue comes from non-GLP-1 offerings. Verticals like dermatology are driving rapid growth, with men’s and women’s dermatology revenue up 55% and 100%, respectively. According to Yemi, personalization is also driven largely by verticals other than weight loss. As evidenced by 43% YoY growth excluding GLP-1, Hims is a healthcare platform, not an opportunistic GLP-1 dispenser.
On a similar note, management guided for each of the platform’s specialties to bring in over $100M in revenue in 2025.
I’m long Hims for much the same reason I’m long most of my other investee companies: because they solve a growing volume of acute customer pains in a way that’s increasingly harder to imitate profitably. This is best evidenced by a proliferating subscriber base combined with considerable operating leverage. In the graph below you can see how subscribers have grown from 1.42M to 2.2M YoY, with 55% of them now utilizing a personalized subscription. Meanwhile, both marketing and G&A expenses as a % of revenue are down 2% YoY (though it should be noted that, given the strength of their marketing strategy, much as Buffett did with Geico, we want them deploying as many dollars into such demand creation expenses as possible).
Notice on the right hand side of the graph below that revenue per monthly online subscriber ticked up from $53 to $73. All things considered, this is extraordinary progress and further evidence of healthy engagement and retention rates.
Marketing leverage evidences Hims’ shift towards organic traffic. At first the company relied inextricably on performance marketing, because stigmatized verticals seldom translate into word of mouth. As they continue to increase the breadth of their services, it seems that marketing expenses as a % of revenue will continue to decrease 1-3% per year, as management said in the call. This is also a symptom of healthier retention over time. Over the long term, this will likely act as a notable tailwind for Hims' profitability.
See CFO Yemi Okupe’s remarks during the Q&A section:
Additionally, we have high confidence in our ability to continue driving between one to three points of marketing leverage per annum as a result of, first, an increasing amount of our spend becoming semi fixed in nature.
Second, an ability to draw a broader audience and retain them as a result of high quality personalized solutions available on the platform.
The weight loss segment’s management team has once again demonstrated Hims’ ability to deploy, scale, and mature new verticals successfully. Although rapid growth of the vertical dragged gross margins down two percentage points, management decided to decrease the cost of their GLP-1 offerings from $199 to $165 per month. This is further evidence of management’s commitment to continue sharing economies of scale with customers, despite short term financial pain.
They expect gross margins to tick back up in Q2 2025. Once again, I have no reason to doubt their guidance given their extraordinary execution to date. However, I will pay close attention to the evolution of gross margins to further assess the management team.
Hims’ non-linear growth is best evidenced by two recent acquisitions. Combined with Hims’ existing infrastructure, these entities serve as platforms upon which countless other verticals can be layered at marginal cost. Each of these verticals promises to bring in hundreds of $100s of millions in additional revenue, all without the added burden of rebuilding their entire infrastructure from scratch.
The at-home full-body testing company paves the way for hormonal therapies such as menopause, low testosterone, and all kinds of precision medicine. The peptide facility acquisition paves the way for seemingly limitless medical applications, such as metabolic optimization and anti-aging therapies in general. See CEO Andrew Dudum’s remarks on the Q4 2024 earnings call:
At the end of 2024, we also signed an agreement to acquire a California peptide facility. As we work to address chronic conditions and areas of need among Americans, this facility will provide the ability to explore innovative advances in preventative health, metabolic optimization, cognitive performance, recovery science, and biological resistances.
I'm thrilled with the potential range of treatments and peptide science and we are committed to being at the forefront. We believe that this acquisition will provide us with opportunities to more closely participate in this innovation and also bolster our domestic supply chain for treatments that could be critical to America's future.
I didn’t know what Hims would do next when I said that I saw Hims’ intrinsic value at ~$2,000 per share by 2030. But I did assign high odds of management decisions that would multiply the company’s earning power. Five years of winning decisions coupled with extraordinary execution can create tremendous value.
Stock prices track free cash flow per share over the long term. As you can see below, management’s disciplined capital allocation and overall excellent execution is equating to meaningfully higher levels of free cash flow (grey bar) every year. For now I don’t see any deterioration in management’s capabilities and I therefore believe that odds are high that we’ll witness continued, rapid free cash flow growth.
As you can see in the next graph, Hims’ stock price (green line) has been broadly tracking free cash flow per share (blue line).
I was also quite surprised to see Andrew speaking up about the long term potential of Hims in this earnings call. This is the first time I heard him talk like this, and I quite liked it:
Over the past 25 years, Uber and Airbnb reshaped transportation and hospitality. Amazon and Shopify revolutionised ecommerce and logistics.
Netflix and Spotify redefined media consumption, and PayPal and Square modernised digital payments.
Yet we haven't seen a similarly transformative shift in one of life's most critical areas, health care. Recently, however, I felt the same sense of disruption and possibility with what we are building at Hims & Hers.
Lastly, in the past, I’ve discussed on X the value of the closed-data-loop Hims is building, which is fairly unique in the healthcare space. As I see it, the jackpot for Hims would be to become a platform that legacy providers use to operate more efficiently. My hypothesis hadn’t been met with any mention by management–until now. In the Q4 call, Andrew implied such an endeavor was in the works.
Platformization of this nature is likely years out, but the rewards can be truly spectacular. Andrew’s remarks during the call were highly insightful:
And fourth, as our verticalized capabilities and platform gets stronger, we see a path to export our capabilities beyond the walls of Hims & Hers, helping legacy health care enterprises transform to be capable of delivering the same quality, efficiency, and personalisation for their patients. Our recent investments are in lockstep with this future vision, helping to position us to execute across each of these critical areas.
As Hims grows its subscriber base and deploys more verticals, it’s generating highly valuable data for training AI models that improve healthcare for everyone. In my last post I wrote about the economy evolving into a combination of horizontal and vertical Ontologies that promise to commoditise intelligence.
Hims is effectively building a vertical Ontology for healthcare.
Stay focused on the fundamentals and until next time!
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Appreciate the work you put into this man!
I'm newer to HIMS as an investor. One thing I haven't considered is HIMS being the Spotify of healthcare.
That pharma's will plug into HIMS and compete to offer their drugs because HIMS has the distribution.
This is an interesting take. I've only been seeing HIMS as a subscription service, but it does make sense that it positions as America's pharma distributor.
Great work.