Hims and Hers. Equity Research! Part 1/3

The Story of Hims, Business Model, GLP1 Shortage, and Subscriber Statistics

In 2023, the US spent $4.9T on healthcare, around 17.6% of its GDP. This makes the US healthcare system by a large margin the most expensive in the world, yet it has the worst outcomes.

US life expectancy is around 78.4 years, comparable to Colombia despite the country spending just half as much of its GDP on healthcare as the US!

It is clear that healthcare is a gigantic and crucial industry with severe issues. Any company that comes up with innovative solutions to reduce costs and improve outcomes could make significant profits.

This is what Hims and Hers aims to do!

Hims and Hers is a digital direct-to-consumer telemedicine and wellness company aiming "To help the world feel great through the power of better health."

In the last 6 years, the company has seen the demand for its services explode, with revenue growing by 5,434% to $1.48B. As Hims transitioned from a money-losing startup to a $6B market cap, profitable enterprise, its stock rose 218% in 2024!

Understandably, such performance has made the company a favorite of the retail investor community, however, Hims has also become a passionate target for short sellers and skeptics.

In this Deep Dive, I am going to take a full look at the company!

Part 1 will explore Hims and Hers Story, Business Model, GLP1 Shortage and Subscriber Statistics!

1. The Story of Hims and Hers

2. Business Model

3. GLP1 Shortage

4. Subscriber Statistics

5. Parts 2 and 3

1. The Story of Hims and Hers

Hims and Hers was founded in 2017 in San Francisco, California by the current CEO, Andrew Dudum, and a few partners.

The founders originally created Hims to address and destigmatize sensitive health issues, particularly those often overlooked or considered taboo. Sex health and hair loss were the first conditions tackled, since then the company has expanded to treat other conditions.

Hims is a subscription-based, direct-to-consumer, digital-first healthcare company!

Instead of calling clinics to make physical appointments, the company enables patients to seek help from licensed medical professionals through its digital platform.

All of us have had to visit a medical professional. While the process varies a lot by a person’s country of residence and income, the general principles are similar.

Call a clinic to make an appointment with a general practitioner. Choose from the available time slots a slot that best suits one’s schedule, sometimes the same day, other times after a few days, or even a week. Visit the clinic, speak with the GP, get prescribed medication, and go to the pharmacy to purchase it and deal with the insurance for rebates. If the condition requires visiting a professional such as a dermatologist, or cardiologist, one must make a new call to schedule an appointment weeks or even months in advance.

There is just so much complexity in this whole system that wastes time and money!

There are inefficiencies at every step and Hims and Hers goal is to use technology to solve them.

Hims operates in the relatively new and promising telemedicine industry which is poised for explosive global growth.

Polaris Market Research forecasts that the US Telemedicine market will grow with a 17.7% CAGR till 2032 to reach $131.5B!

This growth is driven by a desire for lower costs, simpler, faster, and personalized services that deliver better outcomes.

If Hims is indeed successful at building a sophisticated, digital platform that delivers on their promises the company would be in a great position to be the leader of this evolving industry.

2. Business Model

Hims maintains an online platform that enables customers to seek treatment for a range of conditions. After answering a simple questionnaire one can receive recommendations and prescriptions for certain conditions in mere minutes. However, some conditions require consultation with a doctor.

Hims enables the necessary conversations with licensed physicians through its app and website. The availability depends on whether Hims has a local partnership with doctors and the state’s regulations.

As of 31/12/2024, there are more than 1,300 physicians on the platform!

Once a treatment plant is identified, Hims facilitates the procurement and delivery of prescription medication through its network of pharmacies. The company owns and operates 2 pharmacies, that only service Hims customers, one in Ohio and Arizona. If these pharmacies can’t service a patient, prescriptions are delivered by 3^rd party licensed pharmacies.

Having in-house pharmacies helps Hims maintain consistent service quality, reduces fulfillment costs, and increases operating leverage. So, it is quite likely, that Hims will increase their pharmacy footprint.

Depending on the condition and the medication, Hims provides brand-name drugs from big pharmaceutical companies, cheaper generic drugs, and Hims-branded medications manufactured by white-label contract manufacturers.

The company has two brands that target the genders separately.

Hims offers solutions for men.

Hers targets women.

With its telehealth platform, Hims strives to improve awareness of certain conditions, provide access to affordable treatments, deliver reliable customer experience through technology, and provide unique and innovative personalized, data-driven solutions.

How Hims Makes Money

There are two important aspects of Hims business model that need to be understood.

One is that Hims is a subscription-based business, and the other is that Hims doesn’t accept health insurance.

Subscription businesses generate a predictable, stable, and recurring cash flow, fueling higher reinvestment and growth. This makes the subscription business very appealing to investors. In order to become such a business, Hims strategy is to target common, recurring, and chronic health conditions. This is crucial to reduce churn, and I believe is still a work in progress.

Hims says that 90% of their revenues come from subscriptions, but some skeptics question whether that is truly the case.

The company doesn’t disclose churn and that has created a lot of speculation that churn is very high. So, is it really a subscription business if customers cancel relatively quickly, and only purchase some medicines for a few months? According to Hims investor presentation, more than half of the 2024 revenue came from customers acquired in 2024.

I think Hims is a subscription business, however, it provides services that have higher structural churn than other subscription businesses. We will explore churn in the risk section of this deep dive.

Now let’s talk about health insurance. The US health insurance system is a complicated patchwork of various federal, state, and city regulations and programs. Working within this system is incredibly expensive, time-consuming, and difficult. For this reason, Hims has specifically chosen to not work with health insurance companies and instead provide independent direct-to-consumer services.

This means that customers directly pay for all services themselves!

Why would a customer want to pay directly instead of going through their health insurance?

Firstly, there are around 27M people in the US without health insurance. So for them, it is just easier and cheaper to use Hims services.

Secondly, a paradox of the US health insurance system is that, in certain cases, it might actually be more expensive to use health insurance instead of Hims. There are deductibles, co-pays, out-of-network payments, and various other fees. Also, access to certain generic medications might be limited by the insurance company.

Thirdly, often some medications, such as for hair loss, erectile dysfunction, birth control, and acne are not covered anyway.

Ok, but certainly, the established healthcare insurance networks with all their hospitals, clinics, and pharmacies are a much larger market than the independent one. Why would Hims choose to operate in an industry with a smaller TAM?

Firstly, while nowadays, Hims is a $6B enterprise, just 5 years ago it was a small start-up with limited funding. Working within the system comes with large regulatory burdens that significantly increase operating costs.

Secondly, not dealing with insurance companies simplifies everything for Hims and their clients. Hims can build a unique digital offering that is not slowed down and constrained by burdensome insurance processes, enabling a better customer experience. Most importantly, Hims can set their own prices, which are often below what similar treatments cost through insurance.

Thirdly, it allows for more flexibility in their operations. Hims can launch and scale new products and treatments quicker as it doesn’t have to deal with any insurance red tape.

Other Facilities

Recently Hims acquired a compounding pharmacy, in a sense becoming a mini-pharma manufacturer. A compounding pharmacy is a drug manufacturer that instead of mass-producing medications, creates specialized customized versions for individual patients, who due to certain medical conditions are unable to take a particular mass-produced drug.

Compounding pharmacies can create a customized dose, change the delivery mechanism (from a pill to a liquid or vice versa), remove allergens, combine medications, and create drugs that are in shortage (GLP1s).

This new facility will enable Hims to produce customized personalized medications, helping people with very specific medical needs. Such customers could be more sticky, as someone dependent on Hims for a unique treatment is less likely to cancel. Additionally, owning their own facility means that Hims can streamline operations, improving fulfillment speed and reducing costs.

Moreover, it positions Hims to be better prepared to quickly produce medicines when an inevitable new drug shortage arises in the future.

According to Cervicorn Consulting, the US compounding pharmacies market is projected to nearly double by 2033, to close to $10B. This indicates that there is a strong demand for personalized medications.

Laboratory testing is another promising telemedicine area that Hims has recently expanded to. This will improve Hims capabilities in diagnostics and help strengthen their personalized medicine offering. For many conditions, lab tests are crucial for diagnosis and proper treatment.

Key Medical Conditions

There are some very common medical conditions with a potential for better margins that Hims has chosen to tackle first.

Men’s sexual health, women’s reproductive health, mental health and anxiety, obesity, hair health, dermatology, and more.

Hims and Hers 2025 Investor Presentation.

Let’s analyze some of the conditions that are the largest revenue contributors.

Sexual and Reproductive Health

I don’t think it is controversial to say that people love having sex. However, unfortunately, there are many medical conditions that interfere with a man’s ability to get an erection, with obesity being one of the most common ones.

Furthermore, as men age, they naturally lose the ability to maintain strong erections. It is estimated that 18% of men experience some form of erectile dysfunction, with 70% of men after 70 reporting it. That is around 18M men in the US alone.

So, it is not surprising that Hims has chosen to tackle this medical issue.

After completing a questionnaire, depending on one’s needs, customers are offered various medications to help improve their sex life.

This is a sensitive issue for many men, so an easy-to-use, online platform that delivers the medication in a private and reliable way has the potential for a significant adoption.

Meanwhile, women can order various medications that help them regulate their menstrual cycle. This is a biological reality that every single woman deals with. So, the market is massive. Hers offers birth control subscriptions for prices ranging from $12 a month.

According to Hims 2025 Investor Presentation, the company expects to make over $100M in 2025 from serving this category!

Dermatology

Skin diseases and conditions are one of the most common medical problems in the world. It is estimated that at any given time one in three Americans deals with one. While most of these conditions pose no long-term threat, the fact that many of them are easily seen makes them quite bothersome, especially, in our connected social media-driven digital world.

This makes Dermatology an incredibly large market!

For example, from 2001 to 2010 there were over 700M outpatient visits for skin-related problems in the US. A large share of these visits were probably for simple conditions that a medical professional can diagnose in a few minutes.

This is a perfect market for Hims to tackle!

With its platform, Hims is making it easier for patients to get treatment and reducing the need for outpatient visits, alleviating stressed clinics to handle patients with other more severe conditions. Acne, wrinkles, dark spots, eczema, and rosacea are some of the key conditions that Hims targets.

To expand in this segment in 2021, Hims spent $190M to acquire Apostrophe, a teledermatology company specializing in Acne treatments. In early 2025, the brand was discontinued to have a unified dermatology experience, but the fact that there were no asset write-downs or impairments suggests that all technology, facilities, and subscribers were successfully integrated into Hims and Hers.

According to Hims 2025 Investor Presentation, the company expects to make over $200M in 2025 from Dermatology!

Obesity

Obesity is a severe issue that millions of Americans deal with. Hims tries to help patients lose weight with personalized weight management programs. After a simple assessment of the patient’s condition, the company gives various recommendations that come with nutritional guidance, educational content, and in-app tools to track progress. In certain cases, Hims suggests medications, with GLP1s being the most effective and famous ones.

Hims GLP1 obesity treatments cost $200 per month, significantly cheaper than the estimated $900 to $1,300 per month of Ozempic or Wegovy.

Hims was able to sell these cheaper compounded versions of patented GLP1 medications due to a special exemption due to a shortage.

Let’s examine that.

3. GLP1 Shortage

To incentivize the development of new medicines, pharmaceutical companies are given patent protections. This means that for a period of a few years, they have the exclusive rights to sell that medicine, no other pharmaceutical company is allowed to copy it.

However, to discourage drug makers from artificially limiting supply to increase prices, the FDA has the power to declare a drug shortage in the US. This allows special compounding pharmacies to create versions of previously FDA-approved drugs and offer them to patients without needing FDA approval and without violating patent protections.

This is how Hims was able to sell compounded semaglutide GLP1 medications without violating Novo Nordisk’s Ozempic patent!

The shortage lasted from August 2022 to February 2025. According to FDA rules, Hims must stop selling compounded GLP1 injections by May 22, 2025.

Since the shortage was declared, Hims stock has fallen 44%!

Many short-term investors bought Hims shares based on the belief that the GLP1 shortage would continue, enabling the company to make billions of dollars from it. As the FDA declared the shortage over, they sold the stock.

However, GLP1s were only 15% of Hims revenue in 2024. While a large segment, it is just one part of Hims business. Additionally, it is not going to zero, as the company has indicated it will source alternative medications to help patients treat obesity. Moreover, Hims has said that they intend to continue selling GLP1s.

There has been some speculation that Hims will continue selling GLP1 en-masse through the FDA personalization loophole. In certain cases, the FDA allows compounding pharmacies to create special personalized doses of medicines that are tailored to a particular patient’s medical needs.

However, the law requires there to be a “valid medical justification” for such a personalized dose!

Meaning, this provision is meant to be used in rare cases. There is fear that Hims has a very liberal interpretation of this provision of the law. Using this personalization loophole is guaranteed to end in lawsuits with FDA and large pharmaceutical companies.

I find it very likely that the courts will not look lightly at such an attempt to circumvent patent protection laws.

Additionally, this would set a very dangerous precedent and lead to more companies attempting to circumvent patent protections through this loophole.

For this reason, I find it unlikely that Hims will indeed try to use this loophole to sell large volumes of GLP1s!

Thus, after such a jump, Hims obesity revenue growth could slow down or even go negative.

However, in Hims 2025 Investor Presentation, the company indicated it expects to make around $725M in 2025 from Obesity!

Let’s see if they can meet this target, or if the company changes the target in Q1.

4. Subscriber Statistics

As of 2024 Hims has 2.2M subscribers, an increase of 700K from the prior year, around 47%.

In the left chart above we can see that the subscriber growth has been impressive.

In just 4 years, Hims has grown subscribers by 669%, a CAGR of 66.5%!

In 2024, all of Hims subscribers made 10.5 million orders, an increase of 21% Y/Y.

In the right chart above we see that, while the order growth has been strong, it has been less impressive than subscriber growth. Net orders grew 43% and 21% in 2023 and 2024 vs the 50% and 47% subscriber growth.

This means that net orders per subscriber have decreased.

Since 2020 the net orders per subscriber have decreased by 38% from 7.7 to 4.8. This means that the average subscriber in 2024 is making fewer orders than in 2020.

This is a bit of a flawed metric as there could be many causes and interpretations for this.

I think the main explanation is that due to Hims incredible growth in subscribers, the company has been acquiring some lower-quality higher churn customers.

Whilst, at the same time, existing customers are making larger orders, possibly meant for a longer time period.

In 2024, the average order value (AOV) grew 41% to $137, driven by strong adoption of GLP1s.

Since 2020, AOV has grown by 121%, from $62 to $137!

In the chart above, we can observe that AOV was steadily growing until its growth reaccelerated in 2024 due to GLP1s. Hims are selling this drug for $200 a month, significantly higher than what other treatments cost.

As Hims must stop selling GLP1s in large quantities, I think it is quite likely that in the next few years, AOV growth will be significantly smaller or even negative.

Meanwhile, Monthly ARPU was $64 in 2024, up 19% Y/Y. While that sounds impressive, it was likely entirely driven by GLP1s.

In the above chart, we see that yearly ARPU growth from 2020 to 2023 was minuscule, 2-4% per year. Such growth was much lower than inflation during this period, so inflation-adjusted ARPU growth was actually negative.

This indicates that barring GLP1s, the average Hims customer is not increasing the use of Hims services!

If they were, the ARPU would grow much faster. So the revenue growth was mostly driven by the company acquiring new subscribers! Which is not necessarily bad, if Hims can keep acquiring new customers.

This is an important metric to monitor. Now that Hims faces limitations to their GLP1 business, ARPU could fall or grow much slower.

5. Parts 2 and 3

Thank you for reading the first part of this Hims Deep Dive!

Next week in Part 2 I will explore the competitive dynamics of the industry, and compare Hims to the fallen angel of the telemedicine industry, Teladoc!

Also, I will look at the risks that Hims business faces!

Hims and Hers. Equity Research! Part 2/3

This report will conclude with Part 3 in which I will explore Hims finances and look at the valuation! Additionally, one can expect an analysis of the opportunities that Hims can execute on to grow the business!

Hims and Hers. Equity Research! Part 3/3

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