Can Hims & Hers’ Branded Pivot Pay Off?

Hims & Hers Health, Inc.’s latest earnings report has left investors puzzled. On one hand, the company’s revenue continues to soar, with a 38% year-over-year increase in Q2. Subscribers have reached 2.89 million, up 19% from last quarter, and monthly revenue per average subscriber climbed 21% to $92. However, net losses are mounting, reaching $86.3 million - a staggering 37 cents per share.

The company’s decision to pivot towards branded weight-loss drugs has led to a significant increase in revenue, but at what cost? Gross margin fell to 64% from 76%, and analysts are questioning whether these new customers will eventually replace the lucrative economics of compounded treatments. The market is no longer asking whether Hims & Hers can attract weight-loss customers; the answer, as seen, is yes. Now investors want to know if this growth can be sustained in the long term.

Demand for Hims’ branded weight-loss products has held up surprisingly well despite the product model shift. In March, the company expanded its branded weight-loss assortment through an agreement with Novo Nordisk and stopped broadly advertising compounded GLP-1 drugs. This could have created a revenue gap, but instead, management cited the branded shift as a key driver of renewed domestic growth.

US revenue increased 16% year over year to $621.8 million, and Hims & Hers ended the quarter with approximately 307,000 more subscribers than it had at the end of March. However, these gains come with a cost: lower profitability. The question on everyone’s mind is whether this growth can eventually offset the losses.

Hims & Hers’ decision to move towards branded weight-loss drugs is a strategic one. By partnering with established pharmaceutical companies like Novo Nordisk, the company aims to tap into a lucrative market and gain a foothold in international expansion. However, it also means sacrificing some of the attractive economics of compounded treatments.

Retention rates among newer branded weight-loss cohorts are tracking in line with expectations, but early users receiving a more immersive app experience show lower cancellation rates. This suggests that Hims & Hers is still figuring out how to balance its business model and keep costs under control.

The company’s pivot has significant implications for the telehealth industry as a whole. Can other companies replicate Hims & Hers’ success without sacrificing profitability? What does this mean for patients seeking affordable healthcare solutions?

In the end, Hims & Hers’ branded pivot is a calculated risk that may pay off in the long term. However, investors will be watching closely to see if the company can maintain its growth trajectory and eventually turn a profit. The stakes are high, but one thing is certain: the telehealth industry is on the cusp of significant change.