Hims & Hers: From Viral Ad to Volatile Stock

Key Points

• Hims & Hers successfully utilized a bold Super Bowl advertisement to enhance brand visibility and capture market attention.
• A strategic focus on expanding into the high-growth weight loss medication market has positioned Hims & Hers for substantial revenue and subscriber growth.
• Hims & Hers demonstrates a strong trajectory toward profitability, capitalizing on the expanding telehealth service sector and innovative market strategies.

Hims & Hers Health's NYSE: HIMS share price has surged recently, climbing above $60 and creating new 52-week and all-time record highs for the company. This significant increase in Hims & Hers Health’s stock price has attracted considerable attention from investors. Several factors may be driving this investor enthusiasm. The company's high-profile Super Bowl advertisement has increased brand visibility and market awareness.

Additionally, growing investor interest in telehealth, especially companies like Hims & Hers that offer innovative solutions in expanding markets like weight management, is likely contributing to the stock's positive sentiment.

Halftime Hype: The Super Bowl Ad Effect

Hims & Hers made a bold move into mainstream advertising with a minute-long Super Bowl commercial. This high-stakes marketing play put the company's weight loss offerings squarely in the national spotlight. The advertisement directly addressed the growing obesity crisis in America, portraying the healthcare system as failing to provide affordable and accessible solutions.

The narrative emphasized the affordability and accessibility of Hims & Hers' medications, contrasting them with the perceived high prices of established pharmaceutical options.

However, this move into Super Bowl advertising was not without significant controversy. The commercial immediately drew sharp criticism from various corners. Senators questioned regulatory bodies, specifically the Food and Drug Administration (FDA), about the ad's potential to mislead consumers. 

Key concerns centered on the alleged lack of adequate disclosure regarding the risks and potential side effects associated with compounded drugs and the absence of explicit statements clarifying that Hims & Hers' compounded medications are not FDA-approved.

Pharmaceutical industry groups, such as PhRMA and the Global Healthy Living Foundation, voiced strong opposition, labeling the advertisement as "misleading" and raising alarms about patient safety. These groups formally requested the FDA take action against Hims & Hers, citing concerns about deceptive advertising practices.

Despite the considerable backlash and ethical questions raised by the advertisement, it undeniably succeeded in its primary goal: capturing widespread attention. The Super Bowl commercial generated significant media coverage, sparking national conversations about the healthcare sector, drug pricing, and the role of telehealth in addressing public health crises like obesity.

 Even with the controversy, this heightened brand visibility likely played a crucial role in propelling Hims & Hers into the investor spotlight and contributing to the subsequent surge in stock value. The gamble, while risky, has initially paid off in terms of market momentum and brand recognition.

GLP-1 Gold Rush: Weight Loss Drugs Fuel Growth

Hims & Hers has strategically entered the GLP-1 weight loss medication market, offering compounded versions of semaglutide due to shortages of branded medications. This move has significantly impacted their financial performance, with a 77% revenue increase and a 44% subscriber increase in Q3 2024. Even excluding GLP-1 subscriptions, subscriber growth remained strong at 40%. 

Profits and Progress: Examining Hims & Hers' Financial Foundation

Beyond the market buzz and Super Bowl spotlight, a closer examination of Hims & Hers' financial performance reveals a company exhibiting significant growth and a move toward profitability. Recent financial data underscores a compelling narrative of rapid expansion and improving financial health.

Revenue growth remains a standout metric for Hims & Hers. In the third quarter of 2024, the company reported revenue of $401.6 million, a substantial 77% increase compared to $226.7 million in the third quarter of 2023. This significant year-over-year growth underscores the company's ability to expand its revenue base rapidly.

When revenue streams are broken down, online revenue generated directly from consumers through the Hims & Hers platforms constitutes the primary driver, accounting for the majority of total revenue. 

While representing a smaller portion, wholesale revenue contributes to diversification and enhances brand visibility through partnerships with retailers and third-party platforms.

Profitability, a key concern for many growth-oriented companies, is also showing positive trends for Hims & Hers. While the most recent fiscal year still reflects a net loss of approximately $23.55 million, recent quarterly performance indicates a significant shift. In the third quarter of 2024, the company achieved a net income of $75.6 million and an Adjusted EBITDA of $51.1 million. Notably, the Q3 net income figure included a substantial $60.8 million tax benefit, which significantly inflated the bottom line. 

However, even considering this one-time gain, the Adjusted EBITDA figure demonstrates a genuine improvement in core earnings power. Gross margins remain healthy, consistently hovering around 79% to 81%, highlighting the company's pricing power and efficient cost of goods sold management.

Furthermore, Hims & Hers is generating strong cash flow from operations, with $85.3 million reported in Q3 2024 and a free cash flow of $79.4 million for the same period, indicating increasing financial flexibility and reduced reliance on external funding. These financial indicators collectively suggest that Hims & Hers is transitioning from a high-growth, loss-making startup to a more mature, profitable, and cash-generating business.

Key Risks Clouding HIMS' Horizon

Hims & Hers faces regulatory risks, especially regarding compounded GLP-1s. FDA scrutiny and potential policy changes could significantly impact revenue. Competitive pressures are also rising, with pharmaceutical giants and other telehealth companies vying for market share. The long-term sustainability of relying on compounded GLP-1 revenue is uncertain as drug shortages ease and regulations tighten. Insider selling activity further raises concerns about future stock performance.

Balancing Growth and Risk - A Cautious Outlook

Hims & Hers Health has undeniably captured market attention and investor enthusiasm, fueled by a successful Super Bowl ad campaign and its strategic entry into the high-demand GLP-1 weight loss drug market. The company exhibits impressive revenue growth, improving profitability metrics, and operates in a sector with significant long-term potential.

However, a balanced assessment necessitates acknowledging the current high risks and valuation concerns surrounding HIMS stock. Regulatory uncertainties surrounding compounded GLP-1s, intensifying competition, questions about the sustainability of its current growth drivers, and a premium valuation relative to analyst price targets all warrant a cautious approach.

Given its demonstrated growth trajectory and disruptive market position, a cautious Buy on Hims & Hers may be warranted for investors willing to take the risk. However, for the broader investment community, a Hold stance remains prudent at this time.

The company's impressive momentum and expansion into high-growth sectors present substantial upside potential, yet regulatory uncertainties and intense competition necessitate careful monitoring. Investors should weigh Hims & Hers' compelling growth story against the identified risks, conduct thorough due diligence, and closely track upcoming financial reports and market developments before making definitive investment choices.