Quick Housekeeping:

Microsoft came out saying the report on data center loan cancellations from TD Cowen was incorrect. TD Cowen also came out with a follow-up note saying they expect overall GenAI infrastructure growth to remain quite strong.

The Block review is in the works. I am extremely busy in terms of keeping up with these reports. It’s coming eventually and I appreciate your patience. As far as I can tell, the report really was not that bad (regardless of price action). A lot of mumblings following the call center on disbelief in the company meeting 2025 targets. I have more to read, but that’s my early takeaway. If you’re confident in them hitting those targets, there’s probably a lot to like here. If you’re not, estimate revisions will remain negative and this company could continue to struggle. I go back and forth and place this firmly in my “too hard pile.” Much more coming.

Hims sells personalized men’s and women’s health products with a direct-to-consumer (DTC) business model. It aims to allow users to more comfortably access sensitive prescriptions within areas like erectile dysfunction or hair loss, without going to an office or a pharmacy. Products are mailed right to a consumer’s door. It offers standard and personalized medicine, as well as subscriptions for customer savings & Hims retention boosts.

“Our historical strengths include developing a trusted brand, deploying technology to remove barriers to access, and providing access to personalized solutions at an affordable price.”

Founder/CEO Andrew Dodum

Despite being founded just 8 years ago, Hims is already nearing a $500 million quarterly revenue run rate, with great margins. It’s founder-led and competes with smaller vendors like Roman while increasingly competing with Amazon.

Annual revenue guidance beat by 12.4%, while annual EBITDA guidance beat by 8%. Revenue guidance represents 59% growth at the midpoint. We’ll get into why this awesome guidance was punished shortly.

Hims trades for 42x 2025. I don’t think estimates will move much. EPS is expected to grow by 20% this year and by 11% next year. It also trades for 42x 2025 FCF. FCF is expected to grow by 25% this year and by 29% next year.

The GLP1 Debate:

The guidance HIMS offered was excellent, but comes with a risk. This month, the FDA removed Semaglutide from its shortage list. This is the medication used in the wildly popular Wegovy and Ozempic branded drugs.

HIMS sells compounded commercial Semaglutide copy-cats for $165/month. This was recently lowered from $199 thanks to more supply chain efficiencies, investments and economies of scale; it currently has plans to get that down to $100. It also offers personalized versions of Semaglutide from its compounding facilities.

Drug-makers are supposed to have exclusivity windows before competitors can introduce similar offerings. This is meant to protect hefty R&D investments and to motivate more focus on drug discovery. When a drug within this exclusivity window is in shortage, the FDA relaxes some rules on compounding substitutes. With Semaglutide now off of that list as of last week, Hims expects to cease offering the commercially available doses in the coming months. It will also stop offering these commercial scripts to existing customers. It can still offer personalized doses for those requiring them as long as they’re different enough from the actual medication.

Hims smartly avoided baking in commercial Semaglutide into its 2025 guidance. The issue here is that it also included a minimum $725 million revenue contribution from its overall weight loss suite. Importantly, this includes oral weight loss drugs and Liraglutide, which it expects to add later in 2025. At the same time, $725 million is a massive number. Let’s do some math here. Generously assume commercially available Semaglutide doses generate $20 million in Q1 revenue for them. It did tell us it excluded this from the guide, but it had been offering this choice for most of Q1 already. Next, assume that the $100+ million run rate for its oral weight loss business reaches $230 million in 2025. Then assume Liraglutide rapidly scales to $75 million in 2025 revenue. Again, these are very optimistic estimates that are probably above what will actually happen. But even so, this means personalized Semaglutide will need to do $400 million in 2025 revenue to reach its target. Personalized is a slight majority of its GLP1 business, but that’s still quite ambitious. And? Realistically speaking, this is probably closer to $500 million considering the following quote from the CFO:

“We see our steady state weight loss offering being primarily composed of our evolving oral based solutions as well as Liraglutide later this year. Personalized Semaglutide dosages will supplement these core offerings for the subset of consumers for whom it is a clinical necessity.”

CFO Yemi Okupe

Can personalized Semaglutide plug this $400-$500 million hole? What will the FDA let Hims consider “personalized” vs. what it expects internally (super important)? Will there be a large discrepancy there that limits the company more than it expects? How can Liraglutide and oral rapidly grow to be large enough to get this segment to $725M? The uncertainty and anxiety are likely the sources of tonight’s turbulence. There were several questions about this on the call, but not much more color added.

Some think the worst-case scenario will come to fruition here. They think all personalized compounded Semaglutide will be considered commercial and so illegal to produce. If that’s true, Hims would lose the massive personalized price advantage it enjoys in this market that has helped it rapidly grow. It would potentially need to strike branded wholesale deals and sell them at much lower-margin to keep its offering complete. In my opinion, I think that view is too pessimistic. I do think they’ll be restricted to some degree, but not in full. We shall see.

“There may be the potential to offer commercially available dosages of compounded Semaglutide throughout the year. However, we see our steady state weight loss offering primarily composed of our evolving oral based solutions as well as liraglutide later this year.”

CFO Yemi Okupe

Hims Investment Plans for Weight Loss Amid Regulatory Cloudiness:

Regardless of the highly uncertain regulatory backdrop, the company continues to think compounded GLP1s are personalized enough to enable rapid growth. It sees investments in more capacity as “evergreen” and is not deterred by the regulatory climate. This means turning the weight loss business into a “market leader” in 2025 is a top priority.

Personalization – Why does it Matter?

Hims now has 55% of its total subscribers on a personalized subscription vs. 50%+ Q/Q. “Personalization” can include things like removing ingredients to limit side effects, combining medicines to limit pills, adding vitamins to a script and offering different form-factors. Personalized subscribers come with higher retention, higher engagement, more ARPU and thus higher lifetime value. They enjoy a more differentiated product that naturally motivates them to stick around for longer.

Personalization in 2025 & Beyond – The EMR Foundation and Provider Help:

While personalization has rapidly turned into a core skill for Hims, it thinks it can do so much more here. For context, there are currently 300 total personalized offerings on the site, while it has plans to add thousands more. How? A few ways.

It plans to leverage its state-of-the-art electronic medical record (EMR) to unlock more anonymized and structured data to build deeper customer data profiles. From its early days, it sought to build this EMR foundation to enable scalable data ingestion, automate tedious provider work and foster rapid product expansion. That will remain absolutely vital in the firm’s future. It’s how it moves quickly.

One important product to know here is MedMatch. This is the company’s tool to actually use all customer interactions and data to uncover valuable insight and nudge best provider practices. It also has an AI-powered provider tool called Clever Routing, which contextualizes user needs to prioritize and match demand with proper levels of care. Both products are offered through and made possible by the aforementioned EMR foundation and both will be priorities in 2025.

Whether it’s taking customer interaction notes, automating paperwork or matching providers with more consumers, Hims makes a doctor’s life easier and their revenue stream larger. It wants to keep building on these positive contributions to motivate more usage of its platform.

Ways It Will Deepen Personalization Going Forward:

One of the ways Hims hopes to build on its personalization capabilities is through sharpening the quality, breadth and size of its overarching database. To do so, it recently bought a very small at-home lab testing and diagnostics company. The deal is set to enable low cost or free at-home testing to add another compelling service to its overall platform. More importantly, Hims did this to access more data. It sees this “enabling the expansion of quality consumer insights” to broaden out the type and quantity of context it has on each consumer. This injection will sharpen MedMatch, Clever Routing and every provider interaction it facilitates. It’s a big piece of Hims pushing from 300 personalized options to thousands. Doctors become better at their jobs… consumers access better care.

“With this additional capability, we will be able to test for a wide range of critical biomarkers across heart, hormone, liver, thyroid and prostate, helping to proactively identify individual risks for disease.”

Founder/CEO Andrew Dodum

Next, 2025 will be a year of more affiliate pharmacy investments. As a reminder, 503A pharmacies are facilities where custom medications are compounded. Hims will focus on adding more scale and automation to augment productivity. Just like the diagnostics M&A, this is a vital part of its plans to 10x+ its personalized menu.

Aside from these two things, it also will make more investments in AI to help personalize patient care specifically. For example, it thinks AI can support its high-touch model strength. Through Hims, customers get text-level access to providers and responses within minutes, rather than days. Not only does this mean better service, but it inspires more interactions to create more insight gleaning and inform better recommendations. It spins the fly-wheel. Hims has a lot of ideas on using all of the new innovation in GenAI to create more engaging products with higher usage frequency. Some of these ideas include virtual coaches, trainers and nutritionists for more holistic and hands-on care. It has plans for chatbots to support mental health and will use AI to drive more transparency about why certain recommendations were made. Lots of work to do here.

“We believe that AI will help power extremely important network effects for our platform, enabling each new customer's experience to drive improvement to the care and experience of the next.”

Founder/CEO Andrew Dodum

Better Adherence:

The Hims suite drives better drug adherence. More communication keeps medications top-of-mind for consumers and helps them through any friction-causing issues. For an example of why this matters, 12 weeks into GLP1 treatments, Hims delivers a 70% rate of consumers still taking the medication vs. 42% for competition. As you can see below, this leads to better outcomes:

Category Expansion to Drive Cross-Selling & Tools to Drive Retention/Engagement:

The fabulously successful expansion into weight loss is giving leadership incremental confidence in its platform supporting far more category expansion. The diagnostics purchase and affiliated pharmacy investments will also give it the footprint needed to support this objective. Sleep, low testosterone and menopausal support were cited as three potential future offerings.

Hims also wants to add a lot more services to its site to enhance the core offering. It already has BMI calculators, hydration trackers, medication reminders and other tools. It will add several more in 2025 based on strong engagement signals. Consumers are responding well to everything that it does in this area. As a relevant aside, it will name its newly hired CTO in early 2025 to support this roadmap.

“These capabilities are converting more consumers into subscribers and keeping them engaged with our platform for longer periods of time.”

Shareholder Letter

Final Notes:

Hims talked about white-labeling its platform for “legacy healthcare enterprises” to help them emulate its level of patient and provider care. I really like this idea for them.

The company continues to rapidly take market share within its direct-to-consumer, digital healthcare niche:

The quarter was excellent and the guidance was equally excellent. Growth is rapid even without GLP1s, while product expansion has been uniformly successful and leverage remains stellar. They have masterfully executed; meeting their 2025 revenue goal a full year early is all the evidence we need. But? What comes next? The elephant in the room is how attainable that guidance will actually be given fluid rules and regulations. How will they reach $725M given some of the assumptions I already laid out? I’m personally a bit skeptical. Dialogue surrounding this will be the main company theme until final decisions are made.

As consistent readers know, I’ve been a bit bearish on this name in all of my coverage. I do not see personalization as a defensible moat. I think this business resembles Teladoc with a far better management team. I think Amazon will become an increasingly tough competitor and have no desire to try to predict the decisions of the FDA. 

This is not the time to pound my chest about this. I have no reason to. I’ve been wrong; bulls have been right; that did not change today. The stock has performed extraordinarily well over the last few years and bulls should feel great about that. Going forward, despite leadership executing admirably well to date, I continue to think there are better names to own. This one is just not for me.

If you decide this is for you, I totally understand and respect your decision as always. At my company, we let disagreement make markets, not enemies. All I’d say in that case is zoom out and pat yourself on the back for the fantastic returns you’ve likely enjoyed to date. It’s not terribly expensive and if I’m wrong about all of the risks, this could continue to work. Aggressive earnings sell-offs suck… but they’re often noise in the grand scheme of things.