One of the fastest growing digitally native telehealth platforms
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After just 3 years, digital health startup Hims & Hers went public in a $1.6B SPAC deal in late January 2021 through a reverse merger with blank-check SPAC Oaktree Acquisition.
Hims is a digitally native, vertically-integrated telehealth platform that sells prescription and over-the-counter drugs online, most well-known for prescribing and shipping medications for conditions like hair loss and erectile dysfunction straight to your door. They launched with just mens’ products with the aim of creating a seamless digital healthcare experience, particularly for the modern millennial. In the past 3 years, the company expanded into products across anxiety & depression, and dermatology, and personal care, launched into women’s health products (Hers), built an online pharmacy, and even its own EHR. They’ve done over 2M telehealth consultations since launch, and have seen 136% compounded annual revenue growth, from $27m in 2018, $83m in 2019, $149m in 2020, and an expected $195-$205m in 2021.
In this post, we look into Hims & Hers, its growth opportunities, and how it may fare against the increasingly crowded landscape of telehealth as it scales into different verticals.
Fundamentals (Q4 2020)
The recent 2021 annual revenue estimate growth rate of just 34%, down from the previous 80% YoY growth rate from 2020, has spooked investors, bringing its stock price close to its initial IPO price.
Revenue: $41M, flat from Q3 2020
Net Orders: 582K
Average Order Value: $69
Gross Margin: 77%
EV/Revenue (Estimated 2022): 26x
How Hims & Hers Makes Money
Hims sells both prescription drugs as well as over-the-counter wellness products, like vitamins and supplements. The business model involves a subscription that is about $20 to $30 per month, but the main revenues come from the sales of prescriptions.
Online Revenue (94%): The sale of product (e.g. prescriptions, wellness products) and services (medical consultation) on the Hims & Hers platform.
Wholesale (6%): The sale of non-prescription products to retailers under a wholesale relationship. For example, you can pick up some products at Target.
Expand into New Chronic Conditions: Hims & Hers intend to expand their platform into chronic conditions such sleep disorders, infertility, diabetes, cholesterol, and hypertension, which represent $15 billion, $15 billion, $70 billion, $21 billion, and $7 billion market opportunities respectively. The company estimates that 130 million individuals have chronic conditions in the United States.
Partnerships: Hims & Hers wants to deepen customer engagement by adding in-person care partners, such as Ochsner Health and Mount Sinai Health System. In Q3, they announced a collaboration with Privia Health to give their members access to 2,600 healthcare providers. They also announced an enterprise solution, which offers a turnkey telehealth option for cost-conscious employers.
Continuing to build its brand for millennials & Gen-Z: Hims & Hers launched as a DNVB focused on the $350B millennial and Gen-Z market. With appealing aesthetic and millennial-forward imagery, Hims has established itself as the dominant healthcare platform for millennials, who had limited loyalty and options with pre-existing health systems, and whose lifetime value is just beginning.
Competitors / Risks
SPAC: SPAC are risky investments because their sponsors can be very promotional (prohibited under a traditional IPO), and take companies public based on very generous and high growth assumptions.
Unit Economics: Hims & Hers has only been in existence for three years, and had to make some marketing adjustments in 2019 to reduce marketing expense and increase average order value. The average order value was $25 in 2018, compared to $67 in the last quarter after making these adjustments. It is not clear if the new cohort of customers acquired at the higher order value have similar retention characteristics. Additionally, Hims is subject to the rising advertising costs on platforms like Facebook and Google - one reason why revenue growth slowed in Q4 2020 was because ad rates spiked from the 2020 election and the holiday shopping season, lowering their return on ad spend.
Service Normalization: The telehealth market has gotten crowded during COVID-19 because the government loosened many of the restrictions on the service provided. In fact, 76% of consumers are now more interested in telehealth (vs 11% use in 2019). This resulted in strong performance from competitors such as Livongo, Teladoc and Amwell. This tailwind could reverse as hospitalizations decline and healthcare services normalize to pre-pandemic levels.
Competitors: While telehealth is a growing sector, expected to nearly 10x from $61.4 billion in 2019 to $560 billion by 2027, it’s not guaranteed that Hims will continue to grow its market share. Technology behemoths and retail giants like Amazon, CVS, Walmart, and Walgreens are all making moves in the prescription delivery market, meaning Hims will need strong elbows to maintain its position.
Key Questions to Ask Yourself (before we think you should buy...)
How will the use of telehealth continue to grow post-COVID?
Do you believe that Hims will continue to be the dominant platform for millennials?
Investors should be aware of the risks investing in a SPAC with only three years of track record and a potentially temporary COVID-19 benefit. Post COVID-19 might be a better time to re-consider investing in Hims and Hers.
Note this is not investment advice. Please consider doing your own research before making any investments!
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