In light of the recent FTC investigation rumors, I thought it would be worth our time to think about all of the recent negative news for Hims & Hers Health. After considering all of this news, it would be certainly be worth our while to review the data-based reality that Hims operates from its greatest position of strength in the company's short history (founded in November of 2017).

So, today, we will start by considering the negative news flow, then we will transition into a brief consideration of the thesis.

"The Matrix Is Attacking Hims"

I've shared this idea a few times over the last month in response to the various attacks on the company that have prominently and publicly occurred over the last year or so, beginning with Spurce Point Capital's short thesis published in late 2023.

As an aside, if you'd like to hear me discuss this Hims-Matrix idea verbally, tune into the Hims House podcast (link to YouTube at the bottom of this page). Generally speaking, I do think it's an important lens through which to see any "fast growing" company achieving visible success and being duly rewarded for it via share price appreciation.

As we covered in this Brief, virtually every great company... excuse me... not the great ones, no, virtually all of the very, very best, 21st-century defining companies* were all aggressively shorted and/or publicly attacked at some point, including Jesus Christ himself by way of being nailed to a cross.

"The Matrix" attacked them, so to speak.

As I shared in the concluding portion of the most recent podcast episode, I do not take this idea so seriously. There's a degree of absurdity or surreality to it all that precludes a heaviness.

I do not believe we need to mobilize to defend against "the agents." I think the short attacks and skepticism are natural and healthy aspects of how our reality operates and evolves.

New companies and new ideas, and really new anything, are tested so as to ensure that they will perpetuate human survival; not harm it. It would not make sense for the human species to wholeheartedly embrace a weak culture, so there must be a hazing process, akin to a fraternity or sorority hazing, or basic training in the military (I actually enjoyed my basic training), whereby the new entity's mettle is tested.

Should it overcome the tests, or "The Matrix Attacks," then the new will become the normal and the self-evident. It will become woven into the fabric of the reality, or society, in the same way Christianity, irrespective of your or my view of the world, has objectively become woven into the fabric of global society following Christ's crucifixion (attack by the Matrix). The concrete, objective reality is that roughly 2.3B humans identify as Christians, and the genesis of this religious tradition was by way of a "Matrix Attack."

To close this exploration, I would just like to reiterate that I see all of this as a natural and healthy aspect of the self-preserving tendency of humans. We do not want weak companies, weak ideologies, or weak characters becoming embedded into the fabric of society and leading it off a cliff, so "matrix attacks," or hazings, or character-building exercises, or whatever you'd like to call the process... evolutionary?... must happen.

Turning to the actual and concrete news flow that has targeted Hims & Hers Health, on June 21st, before Hunterbrook and Capitol Forums announced their coverage of Hims painting it in a rather negative light, I shared my intel that indicated that this negative news flow would arrive in the weeks ahead.

And it has indeed arrived.

I would strongly encourage you to read that warning, so to speak, here.

In that post, I noted three sources of negative news flow, one of which had already happened (Spruce Point Capital) and two of which were set to happen in the months or quarters ahead (Hunterbrook and Capitol Forums).

To provide an update for each of those points, as of today:

1. Hims' LTV/CAC is the highest it's ever been based on the data to which I have access (shared below), dispelling Spruce Point's bear thesis. Hims just had its largest quarter of subscriber additions in its company history in Q1'24, and, with the arrival of GLP-1s, it's set to continue this pace of torrid subscriber growth.
2. We already received the Hunterbrook short thesis, and it was objectively very poorly crafted. The only real takeaway was that Hims needed to vet its compounding pharmacy from whom it's receiving its GLP-1 products. Hims selected an FDA-approved 503B compounding pharmacy in BPI Labs, LLC, from a list of 503B compounding pharmacies provided to Hims by the FDA itself.
3. And, lastly, as I noted in the link to the post warning of all of this negative news flow, Hims' pricing practices have now been called into question by Capitol Forums by way of a rumor that the FTC, which recently fined Adobe for deceptive pricing practices, has opened an investigation into Hims. I have not seen confirmation that there's an ongoing investigation, but we knew something to this effect would happen eventually. I have personally purchased a series of products from Hims and have not once felt deceived by the company's pricing practices. Moreover, the company offers many products today through two different brands, i.e., its male and female brands, which are distinct and separate from each other. In a worst case scenario, Hims would have to adjust pricing practices for certain products and pay a fine. I'll conclude and add here in saying that my former Hims Doc, who has been a trusted source of information related to the Hims business for about three years now, did note to me that he felt some pricing could be perceived as deceptive when we worked for the company. This is simply what he told me; however, 1) he has not sold a single share (very large position, teetering into the seven figures to give you an idea), and, 2) again, a worst case scenario is Hims must adjust pricing practices for certain products and pay a fine, as Adobe did recently. I do not believe this is existential for the company in any respect.

Really, out of the three, while the latter two seem scarier, the first would be the scariest, in that it would indicate that Hims' business model was fundamentally broken.

But the data-based reality is that Hims just reported arguably its best quarter ever, as defined by a series of metrics we will review now.

Concrete, Data-Based Reality For Hims' Best Quarter Ever

In the midst of all the noise and matrix attacks, or matrix hazings, or God building the character of Hims... however you look at it, the concrete data underlying the business seems to have been lost.

The indisputable reality is that Hims operates from its greatest position of strength in its company history, as defined by:

It recently reporting a record number of quarterly subscriber additions and accelerated its growth of subscriber additions sequentially.

It recently just reported one of its best LTV/CAC metrics in its company history as measured by its highest delta between gross profit margin and sales and marketing as a % of revenue.

Some might argue with me about this statement, providing some of their own proprietary calculations of LTV/CAC (which are always flawed because we don't know Hims true retention rates for each cohort of customers dating back to November of 2017). The north star metric, in the absence of cohort retention metrics, which no one but Hims has, is simple the delta between the two metrics presented above.

The growing difference between these two metrics represents the value (LTV) of each Hims customer growing relative to the company's cost to acquire said customer, hence it represents an improving LTV/CAC, which, as we've discussed in the past, can be pulled through to the net present value of a company.

Moreover, as the delta here expands, it affords Hims the ability to pull up on its EBITDA and, more importantly, free cash flow margins, which it has done in recent quarters in a linear and controlled fashion.

It just reported its best adjusted EBITDA metric in its company history.

It continues to scale free cash flow and free cash flow per share, the latter of which, as we know well, is the basis of all equity value.

With $200M+ in cash, $0 debt, and sustained free cash flow generation, plus the advent of its booming GLP-1 business, the bears are in a tough spot at this point. That's just the data-based reality. I think Hims will do well, but ultimately, you tell me what the data says...

To close, it's also worth noting that Hims just materially accelerated its sales growth.

It Just Grew Sales Sequentially At 12.55%, Accelerating Growth From Prior Quarters. 12.55% Sequential Growth Represents 60% Annualized Growth. Hims Grew At 46% In Q1'24. This is without GLP-1s.

And, atop all of this strength, Hims' GLP-1 business is very likely booming presently, which implies that it will likely outperform its current Q1'24 and 2024 sales and growth estimates by a wide margin.

Hims reports earnings on August 5th, 2024, and it promises to be an interesting report.