Here’s why Hims and Hers (HIMS) is down Wednesday despite strong Q4 numbers

Earnings season is an important time for investors and publicly traded companies alike, but those quarterly reports don’t always tell the full story. Take Him & Hers Health (HIMS), for example.

Its latest financials looked solid at first glance:

• Revenue of $481.14 million was nearly $11 million above forecasts

• Subscriber numbers of 2.23 million slightly beat expectations

• Net income increased during the fourth quarter to about $26 million

Despite better-than-expected results, the stock began to dip in extended hours after the report was released on Monday. Those losses extended into Tuesday, which ended with shares trading more than 22% lower for the day.

A missing miracle drug

There has been a meteoric rise in the popularity of a specific class of weight-loss medication, and companies like Hims & Hers have rushed to enter that lucrative market.

In May, the telehealth provider expanded its services to include a compounded version of semaglutide (the active ingredient in drugs like Wegovy and Ozempic).

When news came from the FDA on Friday that those brand-name medications were no longer in short supply, however, it threatened Hims & Hers’ ability to continue offering an alternative.

Rules for producing and distributing compounded drugs are generally more lenient during shortages.

Last week’s news resulted in an announcement on Monday that the company will likely discontinue most of its compounded semaglutide treatments beginning in the second quarter of this year.

Considering that these products were responsible for nearly a quarter of a billion dollars in revenue for Hims & Hers last year, the statement sent ripples across Wall Street.

The stock initially dropped about 28% on Tuesday before recovering slightly by the time the closing bell rang. Hims & Hers did confirm that it would be refocusing its weight-loss strategies to include treatments like liraglutide and oral medicine as opposed to injections.

“A lot to digest”

While fourth-quarter earnings appeared strong, the loss of semaglutide wasn’t the only thing that worried some analysts. With a gross margin of just 77%, Hims & Hers came in nearly a percentage point and a half below forecasts.

Taking it all in on Tuesday, Morgan Stanley analysts admitted that it was “a lot to digest”— for better or worse.

As for their outlook, the note concluded: “We remain positive on the long-term opportunity, highlighting the company’s attractive platform and solid track record that differentiate it relative to digital health and DTC comps.”

Analysts at Bank of America were less enthusiastic, however, predicting the company will have “significant execution risk” as it tries to compete in the weight-loss arena without offering semaglutide.

And although Hims & Hers offers a variety of other health-related products for issues like hair loss and ED, the Bank of America analysts wrote that 2025 could be an opportunity for the company’s rivals to redouble their efforts in those areas.

Hims & Hers has become one of the most recognizable names in the growing telehealth field. As the industry changes and new competitors rise up, however, analysts agree that it cannot afford to rest on its laurels.