2023-12-14 12:15:13 ET
Summary
- Hims & Hers Health raised its guidance once again when it reported its Q3 results.
- The company saw significant growth in subscribers, particularly in the mental health and women's health sectors.
- HIMS is one of the cheapest growth stocks around.
- Amazon Clinic adds competition, but at the same time helps "legitimize" the business model.
I upgraded Hims & Hers Health ( HIMS ) in September , saying that while there are risks, the stock was a speculative “Buy” given its growth and valuation. The stock in up over 40% since then. With the company reporting its Q3 results on November 6th , let’s take a closer look at the name.
Company Profile
As a reminder, HIMS is a telemedicine platform that connects patients with licensed professionals with a particular focus on Men's and Women's health issues. The company initially focused on Men's health, addressing issues such as erectile dysfunction, STDs, and PE, before moving into Women's health, cover such areas as birth control, libido enhancers, and STD. It has also ventured into other areas including dermatology and mental health.
Most of the company's prescriptions are sold through subscriptions and delivered by mail order pharmacies. Customers can choose how often they receive their medications, ranging from every month to less frequent deliveries. The doctors on its platform are not employed by HIMS, but the medical groups that are used on the platform were formed with the single purpose of providing services for the company’s patients.
Q3 Results
For its most recent quarter, HIMS saw revenue climb nearly 57% to $226.7 million. That topped the analyst consensus calling for revenue of $220.3 million.
Online revenue jumped 57% to $219.7 million, while wholesale revenue rose 39% to $7.0 million.
HIMS subscribers soared 56% to 1.426 million. Net orders grew 33% to 2.222 million, while average order value rose 19% to $99. Monthly Online Revenue per Average Subscriber fell -4% to $54.
The company called out mental health as an area of strength, growing subscribers by triple digits to 125,000 subscribers. It also said female subscribers nearly doubled in the quarter.
On its Q3 earnings conference call , CEO Andrew Dudum talked about some of the innovations with AI the company was partaking in with its MedMatch program. The company is initially testing MedMatch on the mental health side of its business.
“ Last quarter marked the beta launch of a significant evolution of our technology platform, MedMatch. MedMatch is a proprietary service that deploys artificial intelligence and machine learning against the expansive dataset at the core of the Hims & Hers platform. MedMatch is trained on millions of anonymized historical clinical visits, demographics, treatment types and patient outcomes and is being developed to identify the most optimal treatment for a particular person from medication formulary, to dosage, to form factor. With MedMatch clinical decisions and treatment recommendations will be supported and informed by the collective knowledge of thousands of providers and millions of data points. We believe connecting the right patient with the right personalized treatment will result in better clinical outcomes and greater likelihood of long-term patient happiness. Our expanding portfolio of personalized solutions opens the door to more choices of treatments for consumers. MedMatch provides the ability to leverage thousands of interactions to help providers more quickly identify treatments as well as inspire confidence with consumers that a specific treatment has worked for patients like them. This robust technology is continuously learning, which we believe will result in increased effectiveness with each incremental customer, all while maintaining the highest standard of safety and privacy. "
Gross margins were 82.6%, a 360 basis points improvement from 79.0% a year ago. It was a 70-basis point increase sequentially.
Adjusted EBITDA came in at $12.3 million. That compared to a loss of -$6.1 million a year ago. The company had $17.3 million in stock comp in the quarter, which is removed from adjusted EBITDA.
EPS was a loss of -4 cents compared to a loss of -9 cents a year ago. Analysts were looking for EPS of -3 cents.
Turning to the balance sheet, HIMS ended the quarter with $212.5 million in cash and short-term investments and no debt.
Through the first nine months of the year, it has generated operating cash flow of $51.5 million. OCF was over $25 million in Q3.
With its strong balance sheet and OCF, the company announced a $50 million stock repurchase program over the next two years.
Looking ahead, HIMS forecast Q4 revenue of between $243-248 million. That was well ahead of the $227.5 million consensus at the time. It is looking for adjusted EBITDA of $14-17 million.
For the full year, the company is projecting revenue of $868-873 million versus analyst estimates of $846.7 million at the time. It forecast adjusted EBITDA to be between $43-46 million. The company previously forecast sales of between $830-850 million and adjusted EBITDA of between $35-40 million.
Overall, this was another strong quarter from HIMS highlighted by outstanding growth in subscribers and revenue. The company is doing a nice job with its newer platforms on the mental health and women’s side of the business. Last earnings call, the company didn’t give an update on the women’s business, so this revelation was a big positive in my view. At the same time, gross margins also saw a notable improvement as well.
Q4 guidance was also very strong, coming in well ahead of analyst expectations and representing growth of 47% at the midpoint. The company has raised its full-year guidance three times this year, which is very impressive.
As for areas to nitpick about, one is that while adjusted EBITDA positive, stock comp would wipe out those gains. Meanwhile, its Sales & Marketing efficiency has been worsening the last few quarters. It is still good with a payback of under 2 years, but it is a trend to watch. This is a metric I like to track with subscription businesses to make sure the companies are growing responsibly and not just growing to grow.
Valuation
HIMS currently trades around 36x the 2023 consensus EBITDA of $44.4 million and about 21x the FY2024 consensus of $76.4 million.
It trades at a forward PE of nearly 51x the 2023 consensus of 19 cents and nearly 28x the 2024 consensus of 31 cents.
With over 80% gross margins, HIMS can also be looked at on an EV/S multiple. On that front, it trades a 1.9x and 2023 revenue estimates of $871.3 million and under 1.5x 2024 revenues of $1.1 billion.
Revenue growth is expected to be over 65% this year, and then grow around 26% in 2024.
If HIMS was a SaaS company, it would likely trade between 8-10x EV/Sales given its growth, positive cash flow, and debt free balance sheet. While it’s not a software company, a 3-4 EV/Sales multiple certainly seems like a possibility. While I think its sales number for 2024 could prove to be too low as it continues to get into new categories and is powered by personalization, using the consensus revenue number would give the stock a fair value range between $16-$22.
Conclusion
From a numbers and valuation perspective, there is a lot to like with HIMS. The company continues to grow rapidly and it still has numerous other categories that it is expected to launch over the next few years. It continues to add new customers pretty efficiently, and its gross margins have grown nicely as well. Meanwhile, its MedMatch initiative looks intriguing and could be a huge differentiator for the company, which some have viewed as having a narrow moat.
That said, the company will always likely be vulnerable to short attacks and scrutinization. Amazon ( AMZN ) Clinic moved into all 50 states earlier this year and continues to add treatments aimed at HIMS’s core competency of Men’s and Women’s health. Meanwhile, being tied to doctors that push pills is also up for scrutiny, especially as HIMS moves into other areas like mental health. That said, AMZN pushing into this business model in a way helps “legitimize” the business, and so far, AMZN Clinic hasn’t hurt HIMS' growth.
Taken all together, I continue to rate HIMS as a speculative “Buy.” This is a high-risk reward stock. My target price is $16.
For further details see:
Hims & Hers Health Q3: The Cheapest Growth Stock Around