Beginning in about mid-2023, Hims' central bear thesis became its growing cost to acquire a new customer. To put this into formal financial terms, in mid-2023, the central bear thesis for Hims became the growth of CAC (customer acquisition cost) per new subscriber.

This idea of an expanding cost to acquire a new subscriber was most perfectly embodied in Spruce Point Capital’s publicly shared short thesis, which it published in mid-2023. In this short report, Spruce Point detailed Hims’ expanding cost to acquire a new customer and highlighted that it could be impairing Hims’ unit economics and ultimately overall profitability and business model.

The Most Important Slide In The Spruce Point Short Report, Which Detailed Growing Cost To Acquire A New Subscriber

After great consideration of the short report, my main conclusion was that a “CAC per new subscriber” of $500 or $250 or $750 is mostly meaningless without granular churn data dating back to the founding of Hims.

Without knowing precisely how many of the, for example, 150K subscribers acquired in Q2’24 will remain subscribers in the 3, 5, and 10+ years ahead, it is impossible to definitively declare Hims’ unit economics, and by extension business model, impaired at $x level of CAC/new subscriber. I specifically share 10+ years because Hims sells “for life” subscription products such as finasteride, minoxidil, and biotin all-in-one chewables, and this must be noted to understand what a given cohort could be worth.

So, if CAC/new subscriber is not sufficient in the absence of granular churn data, what is our north star for determining the health of the overall business model?

In short, it is the difference between gross profit margin and sales & marketing as a percent of revenue, as well as, by extension, the nominal difference between these two metrics.

So long as these metrics continue to expand, and, despite higher CAC/new subscriber in recent years, they have continued to expand, we can be sure that Hims’ unit economics and overall business health are intact and getting healthier.

Hims’ Sales & Marketing Expense As A % Of Sales Reached Its Lowest Point Ever Ex Lockdown Period Which Was Not Representative Of Normal Business Conditions

The Delta Between Gross Profit And Sales & Marketing Expense Reached An All Time High In Q2’24, Despite CAC/New Subscriber Growing Last 24 Months

And, ultimately, this delta has allowed Hims to linearly expand its free cash flow production, free cash flow margin, and free cash flow per share, the last of which is the basis of all stock value.

Hims Free Cash Flow, Free Cash Flow Per Share, And Free Cash Flow Margin

I believe it is certainly worth monitoring the CAC/new subscriber metric, and we do just this via our Hims House data tracker, to which all Discord members currently have access. But because we don’t have granular churn data and granular cohort cash flow data dating back to year one of the business, it is difficult to precisely determine the point at which a given CAC/new subscriber metric would begin to impair the overall business model, and we’ve seen solid evidence of this perspective in that Hims’ CAC/new subscriber has doubled in recent years; meanwhile, its profitability metrics achieved all time bests in Q2’24.