Hims & Hers Health, Inc. (HIMS) kicked off 2024 with a bang, exceeding expectations and raising guidance. Revenue soared, subscriber numbers hit record highs, and the company even declared its first quarter of positive net income. On the surface, it's a story of unbridled success. Yet, beneath the shiny exterior, a potential concern lurks, one that hasn't garnered much attention from analysts: the curious interplay between the average revenue per user (ARPU) and average order value (AOV).

While the focus has rightly been on the incredible subscriber growth - a whopping 172,000 new additions in Q1 alone - the flat ARPU combined with a 21% year-over-year increase in AOV suggests a subtle shift in subscriber behavior that could have long-term ramifications.

Here's the puzzle: a flat ARPU generally indicates that users are spending the same amount on a monthly basis. However, the surging AOV tells a different story. It implies that customers are increasingly opting for multi-month subscriptions, lured by lower monthly prices.

On the face of it, this seems positive. Locking customers into longer subscriptions should, in theory, bolster retention and smooth out revenue streams. But a crucial question arises: what happens when these multi-month subscriptions expire? Will those customers, accustomed to lower monthly rates, happily renew at potentially higher prices? Or will they balk, seeking more cost-effective options elsewhere?

This uncertainty hangs over the company's long-term profitability goals. Hims & Hers has ambitious plans to reach tens of millions of subscribers and achieve adjusted EBITDA margins north of 20%. They're banking on the success of their personalized treatments, which currently boast impressive adoption rates, particularly in emerging categories like women's dermatology and weight management.

However, the company's reliance on affiliated pharmacies to drive cost efficiencies and offer lower prices raises further questions. While this strategy has helped offset margin pressure from past pricing adjustments, it hinges on sustained scale and ongoing automation improvements. Any hiccups in this intricate system could disrupt the delicate balance between pricing, subscriber growth, and profitability.

Adding to the complexity is the anticipated launch of GLP-1s on the platform. This move, while potentially lucrative, brings a new set of challenges. The GLP-1 market is fiercely competitive with significant price pressure and discounting. Determining the optimal price point for Hims & Hers to attract and retain subscribers in this space will be a delicate balancing act.

The company's long-term vision hinges on the assumption that its brand and unique offering will resonate with a vast audience seeking solutions for everyday health and wellness concerns. While they've excelled at removing barriers to access, affordability, and awareness, the question of long-term customer loyalty in the face of increasing competition and potential price hikes remains unanswered.

To truly assess the sustainability of Hims & Hers' explosive growth, investors and analysts need to look beyond the impressive headline numbers. Understanding the underlying dynamics of subscriber behavior, pricing strategies, and the company's ability to navigate the complexities of the healthcare landscape will be crucial in determining whether this is a rocketship destined for the stars or a high-flying venture headed for a turbulent landing.

Hypotheses and Numbers

Multi-month subscriptions mask a potential churn risk. If a significant proportion of customers acquired through discounted multi-month plans do not renew at regular prices, churn rates could spike, impacting revenue and profitability. Monitor the renewal rate of multi-month subscribers after their initial subscriptions expire. Compare this rate to the renewal rate of traditional monthly subscribers.

Dependence on affiliated pharmacies creates vulnerability to supply chain disruptions. Any delays or cost increases in the affiliated pharmacy network could impact margins and pricing flexibility. Track the percentage of orders fulfilled through affiliated pharmacies versus third-party pharmacies. Analyze the cost of goods sold and gross margin trends for both channels.

GLP-1 launch success depends on competitive pricing. Attracting and retaining subscribers in the highly competitive GLP-1 market requires aggressive pricing, which could pressure margins. Compare the price of GLP-1s offered on the Hims & Hers platform to competitor offerings. Analyze the adoption rate and retention of GLP-1 subscribers.

Subscriber Growth and Financial Performance

The following chart illustrates the explosive subscriber growth and key financial metrics of Hims & Hers over the past few quarters. As you can see, the company has consistently added new subscribers, driving significant revenue and adjusted EBITDA growth. Notably, the company achieved its first quarter of positive net income in Q1 2024. Reference: Hims & Hers Investor Relations

Key Takeaways from Q1 2024 Earnings Call

Driving rapid subscriber growth; 35% of new subscribers are opting for personalized treatments; Expected to be a key growth driver in the long term. Q1 2024 Shareholder Letter

Allowing for cost efficiencies and lower prices; 85% of orders fulfilled through affiliated pharmacies; Enable further price reductions and value-added services. Q1 2024 Earnings Call Transcript

Expected to launch this year; Company believes it can offer a competitive, high-quality GLP-1 solution. Q1 2024 Earnings Call Transcript

Expect 1-3 points of leverage per year; Driven by brand investments, personalized solutions, and recurring revenue model. Q1 2024 Earnings Call Transcript

"Fun Fact: Hims & Hers was born out of a simple but relatable problem: its co-founder, Andrew Dudum, struggled to find an easy and discreet way to get treatment for hair loss. The company's success reflects its ability to tap into the growing demand for convenient and personalized healthcare solutions, particularly among younger generations."