Hims & Hers shares tumble as margin miss adds to concerns about GLP-1 business

Hims & Hers Health Stock Drops Despite Strong Revenue Growth – Here’s Why

Hims & Hers Health, a leading telehealth company, recently reported its fourth-quarter 2024 earnings, delivering impressive revenue and profit growth. However, despite surpassing market expectations, the company’s stock declined sharply, falling 18% in after-hours trading. This unexpected drop highlights investor concerns about narrowing profit margins and regulatory challenges surrounding its weight-loss drug business.

Strong Growth But Margin Concerns

The company reported revenue of $481 million for the quarter, exceeding Wall Street’s forecast of $470 million and nearly doubling the $246.6 million it reported during the same period last year. Earnings per share came in at $0.11, slightly ahead of the expected $0.10, while net income surged to $26.01 million from just $1.25 million a year earlier.

Despite these strong results, investors reacted negatively to a lower-than-expected gross margin of 77%, missing analysts’ estimates of 78.4%. Many worry that rising operational costs could hamper profitability in the long run. Hims & Hers CFO Yemi Okupe addressed these concerns, emphasizing that the company had already achieved its 2025 revenue target a year early. He reiterated the company’s commitment to expanding access to high-quality, personalized healthcare solutions, highlighting opportunities for continued growth in the telehealth sector.

Regulatory Uncertainty Hits Weight-Loss Drug Business

One of the major challenges weighing on Hims & Hers stock is the regulatory scrutiny around GLP-1 weight-loss drugs. Since May 2024, the company has offered compounded semaglutide, a lower-cost alternative to popular brand-name medications like Ozempic and Wegovy. Initially, this offering gained strong traction due to supply shortages of Novo Nordisk’s formulations. However, the landscape shifted significantly after the FDA announced on February 21, 2025, that the drug shortages had been resolved.

With the supply issue addressed, the FDA stated that it would begin enforcing stricter regulations on pharmacies and businesses compounding these weight-loss drugs. This development triggered a 26% drop in Hims & Hers stock in a single day, signaling investor anxiety about potential disruptions to a key revenue stream. Many fear that regulatory enforcement could limit the company’s ability to profit from this booming sector, posing a significant risk to its near-term growth.

Optimistic Revenue Projections Offer Hope

Despite these concerns, Hims & Hers remains confident in its future performance. The company has issued strong projections for 2025, forecasting first-quarter revenue between $520 million and $540 million, far above analysts’ expectations of $497 million. Additionally, it expects adjusted earnings to range between $55 million and $65 million, reflecting a steady path to profitability.

Beyond its weight-loss segment, the company has built a strong presence in digital health, offering services across mental health, skincare, sexual health, and hair care. In 2024, its share price soared by nearly 200%, largely due to the success of its weight-loss business. However, with regulatory pressures mounting, the company may need to explore alternative growth strategies to sustain investor confidence.

The Big Picture

Hims & Hers Health continues to establish itself as a major player in the telehealth industry, consistently delivering impressive revenue growth. However, its ability to maintain profitability while navigating regulatory challenges will be crucial in determining its long-term success. Investors will be closely watching the company’s next earnings call on February 24, 2025, at 5:00 p.m. ET to gain further insights into its future strategy.

The coming months will reveal whether Hims & Hers can adapt to shifting market dynamics or if regulatory hurdles will slow down its momentum. Regardless, the company remains an intriguing contender in the evolving digital health landscape.