Hims Q3 Growth Masks Margin Erosion, Reinforcing Cautious Stance

What happened

Hims & Hers reported robust Q3 2025 revenue growth of nearly 50% year-over-year to approximately $600 million, driven by rising ARPU and strong subscriber gains, as highlighted in the new Seeking Alpha article. However, gross margins compressed to around 74% from previous highs in the 70s, attributed to GLP-1 shipping cadence changes, price cuts, and facility expansion inefficiencies, echoing the DeepValue report's warnings about margin pressures from newer, lower-margin offerings. The company generated $79 million in free cash flow and nearly $150 million in operating cash flow, bolstering its over $1 billion cash position for reinvestment and buybacks, which the report acknowledges provides liquidity but cautions against overreliance given structural risks. Despite this financial strength, the DeepValue report underscores that Hims' heavy reliance on GLP-1 weight-loss offerings, comprising 30-40% of revenue, faces escalating regulatory threats from compounded semaglutide restrictions and TrumpRx pricing caps that could erode long-term profitability. This juxtaposition of top-line momentum against underlying margin erosion and regulatory overhang validates the report's POTENTIAL SELL rating, emphasizing that investors should look beyond surface-level growth propaganda.

Implication

The strong Q3 results validate Hims' ability to drive top-line expansion, but the margin decline signals deeper issues with GLP-1 economics and operational efficiency that could cap multiple expansion. Cash flow generation provides a near-term buffer, yet the over $1 billion in cash may not offset the structural risks from FDA compounding curtailments and TrumpRx pricing compression, which threaten the core arbitrage model. With the stock trading at elevated multiples of ~53x P/E and ~96x EV/EBITDA, any disappointment in future growth or margin sustainability could trigger significant downside, aligning with the report's bear case of $18. Therefore, while the company shows operational resilience, the investment thesis remains skewed towards caution, favoring trimming positions over new buys as highlighted in the DeepValue master report. Monitoring upcoming quarters for margin stabilization and regulatory developments is crucial, as early warning indicators like gross margin falling below 70% could signal accelerated deterioration.

Thesis delta

The Q3 2025 results confirm the DeepValue report's concerns about gross margin compression due to GLP-1 dynamics and operational inefficiencies, reinforcing the existing POTENTIAL SELL thesis. While revenue growth remains strong and cash flow provides resilience, the persistent margin pressure and escalating regulatory risks do not warrant a shift from the cautious stance, as the valuation already embeds optimistic growth assumptions vulnerable to downside surprises.