Regulatory Headwinds And Rising Costs Will Hinder Digital Health Scalability

Key Takeaways

• Regulatory complexity, data privacy risks, and tighter oversight threaten scalability, margins, and customer trust for online prescriptions and new health categories.
  
• Rising competition, price pressures, and digital access limitations may slow subscriber growth, increase acquisition costs, and compress margins.
  
• Expanding product and partnership strategies, growing subscriber base, and operational efficiencies are positioning Hims & Hers Health for strong, sustainable growth in a broadening market.

Catalysts

Operates a telehealth platform that connects consumers to licensed healthcare professionals in the United States, the United Kingdom, and internationally.

• The growing complexity and cost burden of regulatory compliance for digital health, particularly around online pharmaceutical prescribing and new partnerships with branded drug manufacturers, is likely to constrain Hims & Hers Health’s scalability and compress margins, especially as scrutiny around GLP-1 and personalized medications intensifies.
  
• As data privacy concerns and potential regulatory tightening increase, Hims & Hers faces both elevated operational costs and risks to customer trust that could reduce platform engagement, directly impacting long-term revenue stability and raising legal liabilities.
  
• The expansion into new high-profile categories such as weight loss and longevity exposes the company to risks of intensified oversight, future reimbursement limitations, and possible restrictions on compounding exemptions, threatening ongoing revenue growth and the durability of current high gross margins.
  
• With the company’s business model largely dependent on cash-pay customers and digital access, widening inequality in broadband and technology adoption can flatline addressable market growth, capping subscriber expansion and leading to flattening top-line growth.
  
• As more competitors—both incumbents and well-funded startups—increase marketing spend and commoditize services in low-acuity areas, Hims & Hers will be forced to absorb higher customer acquisition costs while facing price compression, resulting in deteriorating net margins and increased risk to future earnings.

Hims & Hers Health Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hims & Hers Health compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hims & Hers Health's revenue will grow by 22.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 9.2% today to 8.1% in 3 years time.
• The bearish analysts expect earnings to reach $268.9 million (and earnings per share of $1.03) by about July 2028, up from $164.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 30.7x on those 2028 earnings, down from 79.0x today. This future PE is greater than the current PE for the US Healthcare industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 3.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Hims & Hers Health Future Earnings Per Share Growth

Risks

• Rapidly expanding product lines—such as new personalized treatments, entry into weight loss, menopause, sleep and preventative care, and the acquisition of at-home lab testing and peptide manufacturing capabilities—position Hims & Hers Health to significantly increase average revenue per user and drive top-line revenue growth in the years ahead.
  
• Strategic partnerships, particularly the collaboration with Novo Nordisk and efforts to partner with other major pharmaceutical innovators and diagnostics leaders, give validation to Hims & Hers’ business model and expand opportunities for future joint ventures, likely supporting both revenue growth and increased relevance in the healthcare ecosystem.
  
• Robust subscriber growth across core and emerging specialties, including a 38% year-over-year increase to nearly 2.4 million subscribers and strong retention gains from daily, personalized solutions, is driving higher recurring revenue and has potential to support durable growth in earnings and margins over the long term.
  
• Improving operating efficiency, automation, and fulfillment scale—evidenced by margin expansion, reduced marketing costs as a percent of revenue, and investments in capacity—are enhancing operating leverage and leading to expanding gross and net margins as the business scales.
  
• Secular trends in telemedicine adoption, consumer willingness to pay cash for convenient digital healthcare solutions, and increased focus on wellness and preventive care all continue to broaden Hims & Hers Health’s addressable market, likely resulting in sustained revenue and earnings growth over the long term.

Valuation

• The assumed bearish price target for Hims & Hers Health is $28.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hims & Hers Health's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $85.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $268.9 million, and it would be trading on a PE ratio of 30.7x, assuming you use a discount rate of 6.4%.
• Given the current share price of $58.02, the bearish analyst price target of $28.0 is 107.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.