Hims & Hers Health: The Unicorn (Ex) 2023 SPAC (NYSE:HIMS)

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Hims & Hers Health, Inc. (NYSE: HIMS)

This is a company that I have had the absolute “pleasure” of investing in way too soon — when “growth at all costs” was still a viable investment strategy (incredibly low risk-free rate).

However, this company is very special.

They went public through a SPAC — but unlike other SPACs whose foundations have completely failed since 2020, Hims & Hers Health, Inc. SPAC shined. Let’s start by talking about the company’s operational and financial health since their public debut in 2020.

The public debut

Launched in 2017, HIMS is a healthcare technology company that was created to connect those seeking medical care with licensed providers who can help.

You simply download their app, share your location and birthday, and you’re instantly offered the option to get treated for a wide range of ailments.

This includes:

  • Sexual health

  • Hair and skin

  • Mental health

  • Everyday Healthcare – Think Primary Care, Allergies, Cold & Flu.

But that was only the first step. HIMS doesn’t exactly make its money by offering one-off video consultations, but subscriptions instead.

Let’s pretend you’re like me — determined not to lose your hair as you get older. I take 10 mg finasteride daily to prevent male pattern baldness as I get older. How do I get this medicine? By subscribing to HIMS.

Once users meet with a doctor (presumably seeking a specific treatment), the doctor will prescribe some type of HIMS-branded generic drug—delivered monthly to the user’s doorstep.

In 2020, the company shared this investor pitch detailing their business, their total addressable market, and the growth levers they plan to use to take their business to the next level.

his and hers at a glance

Hems & Hers at a Glance (2020 Investor Presentation)

I wanted to point out two key statistics:

  1. 2 million cumulative telemedicine consultations

  2. They have resulted in 250,000 active customer subscriptions.

Between 2017 and 2020, they conducted 2 million telemedicine consultations — those 2 million consultations resulted in 250,000 customers subscribing to monthly drug delivery.

Note that these subscriptions were only in the hair loss, erectile dysfunction, anxiety and depression, dermatology and primary care markets.

It’s also important to note that these subscriptions are becoming increasingly valuable to the company — as their quarterly revenue per active subscription continues to rise quarter over quarter.

Revenue growth

Revenue growth (Hims and Hers 2020 Investor Presentation)

Continuation of execution

Since making their public debut in 2020, the company has continued to work against its growth levers — in a big way.

During their latest quarterly earnings report (Q3), we learned that the company generated $145 million in revenue, expanded its gross profit margins to 79% (compared to 71% in 2020), and added +174,000 new subscribers over the quarter — bringing their total number of subscribers to 991,000.

Hems and Hers at a Glance

Hems and Hers at a Glance (Hims and Hers 3Q22 Investor Presentation)

They also shared with us that they conducted 8.8 million cumulative medical consultations — up from 2 million in 2020.

In 2022, the company launched an incredibly intuitive mobile app — offering 24/7 care, original content and 1-click shopping.

Something that caught my attention in particular was how sticky their subscription revenue has become over the past few years. In the image below, you can see how almost all of the “new revenue” generated each year translates into “repeat customer revenue” the following year.

subscription growth

Hims and Hers Health 3Q22 Investor Presentation

As of Q3, the company has:

  • Long-term retention: 85% retention of online subscription revenue lasting at least two years

  • Strong unit economics: less than one year payback period on marketing investment

  • Margin improvement: expected to become cor. EBITDA was positive in Q4 and will remain so for the foreseeable future.

Valuation

Think of it this way — here’s a company that between 2017 and 2020 conducted 2 million telehealth consultations, then in 2021 and half of 2022 conducted another +6.8 million on top of that.

A company whose monthly subscriber base nearly quadrupled in size from 250K to 991K — with a demonstrated history of retaining those subscribers over the years. A company with a 79% gross margin, similar to that of SaaS companies.

At $6/share, HIMS is a $1.2 billion company. This means the company trades at ~1.7x 2023 earnings, albeit on an adjusted basis. EBITDA is profitable, forecast to grow +40% — all while maintaining margins of 79%.

In the company’s 2020 investor presentation, they shared their financial projections for 2022 — revenue of $233 million, gross profit of $175 million, and cor. EBITDA loss of -$9 million.

According to the company’s presentation to investors in the third quarter of 2022, HIMS will generate $520 million in revenue, $400 million in gross profit and turn around cor. EBITDA positive this year. These numbers are more than double than what the company hoped to deliver!

Conclusion

If you are an aggressive investor looking to invest in a company disrupting a huge market (healthcare) — Hims & Hers Health, Inc. it might be right for you.

Here are a few more reasons why I like the company:

  • Predictable subscription revenue — 90% of quarterly revenue

  • Exceeded expectations — strong management team

  • Free cash flow is expected to be positive in 2023

  • Tech company-like gross profit margins — 79%

  • A clear path to growth — a total addressable market of ten billion.

I’m happy to continue dollar cost averaging to my position in HIMS at $6/share — but of course the lower the better given the solid future of this company.

I plan to continue to grow my relatively small position in Hims & Hers Health, Inc. I hope to own $7-10K worth of HIMS stock by the end of 2023.

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