What better time for a telehealth company to go public than in the midst of an ongoing pandemic? Perhaps that’s what Hims, Inc., a telehealth and personal care brand, must’ve thought when they made the move. For investors who want to figure out whether or not a Hims position is right for them, here’s what to know about the Hims IPO, plus Hims fundraising that led them to their merger with a special purposes acquisitions company (SPAC).
- In October 2020, Hims announced they were going public via a SPAC called Oaktree Acquisitions Corp.
- Hims (sometimes called Hims & Hers) has only been around for three years, but they’ve already amassed 260,000 subscribers.
- In 2020 alone, they released at-home COVID-19 test kits, therapy services, and Spanish-speaking services.
- Hims will be available through Oaktree on the NYSE under the ticker symbol “HIMS”.
- Hims isn’t without its controversy. Savvy investors should consider the pros and cons.
- They expect to finalize the deal by January 19, 2021—though that is already a pushed-back date from their original goal, which was the end of 2020.
- You can learn more about IPOs here.
Hims & Hers: A company history
Hims, which also goes by Hims & Hers due to the fact that it no longer focuses solely on mens products, is still a fledgling company. They were founded in November 2017, just three years ahead of the Hims IPO date.
During the early days of their San Francisco development, Hims offered sexual dysfunction solutions for men. They’ve since expanded on their offerings and claimed the subsector “cloud pharmacy”.
Andrew Dudum is co-founder and CEO of Hims. He’s retaining his role even after the merge. This isn’t surprising, considering the business’ success over the course of 2020. In that year alone, they released three new major products:
- COVID-19 test kits (they were officially approved by the FDA in May, making them the second home-collected saliva test for COVID-19 to receive FDA approval)
- Therapy services (specifically mental health services that provide patients with access to a counselor)
- Spanish-language services
That’s a lot for one year, especially considering the turbulence of the times. Their revenue is projected to grow drastically from the $83 million they earned in 2019. Estimates for the past year show a 60% growth rate and $138 million in revenue.
Image Source: Hims
A good 91% of the company’s revenue comes directly from subscriptions (or “recurring revenue”). With a lifetime value for customers at $325 after three years, they’re reaping a 225% return. For the first and third quarters of 2020, Hims reached a 90% year-over-year growth, which is noteworthy for any brand.
For a company with just 131 employees, Hims has been able to expand rather rapidly in a short amount of time.
Hims has a reported valuation of $1 billion, which places it perfectly in unicorn territory. (A unicorn company is a startup with a $1 billion+ valuation!)
Over the course of their history leading up to the IPO, they raised a total of $197,000 in venture capital. Investors include 8VC, Founders Fund, Forerunner, Thrive Capital, Maverick, SVAngel and Oaktree. They also received private equity from the Canadian Pension Plan Investment Board.
Image Source: Hims
Thrive Capital is a venture capital firm that’s led by White House adviser Jared Kushner’s brother, Joshua Kushner. Thrive plans to invest almost entirely in Hims upon completion of the deal. The firm shows a special interest in health tech.
Even with all the Hims fundraising success and company growth, they’re not profitable yet. If all goes according to plan, the company hopes to change that in the short-term. With increased organic traffic comes less investment in customer acquisition, which means Hims has a greater chance of flipping their cards.
Path to the Hims IPO
In the end, it was Oaktree Acquisitions Corp. that made a deal with Hims. Oaktree is a SPAC (AKA a blank-check company) that’s run by Oaktree Capital Management, a hugely successful global investment manager.
So what is a SPAC?
In short, a SPAC is a shell company. This shell company uses capital from the public market to raise funds. They use these funds to purchase a private company, so it’s a different way of going public than a traditional IPO.
SPACs got the name “blank check” because their business plan rests on acquiring other businesses.
With this in mind, SPACs have two years from the date of the IPO to complete the merger. Otherwise, investors get their money back. Sometimes, SPACs fail to merge (TGI Friday’s is one unfortunate example). However, that doesn’t seem like it will be the case for Hims and Oaktree—though they are a little behind schedule.
While it’s unusual for companies in the health and wellness sector to go public via a SPAC, Hims’ status as a startup overrides this. SPACs are common for startups, with businesses like Jay-z’s The Parent Company taking part in a modern wave of popularity.
For many, it’s a solid way to avoid the market volatility that tends to affect traditional IPOs, especially after so many multi-billion dollar initial offerings over the course of 2020.
Once the deal closes, the Hims acquisition will be worth an estimated $1.6 billion. Within that value is $330 million in cash.
Related: What is a SPAC?
What’s next for the Hims IPO
After the merger, Hims will continue plans to develop their services. They currently offer services related to hair loss, sexual dysfunction, dermatology, anxiety, and depression. While they haven’t made their timeline public, they plan to embark on the topics of sleep, diabetes, fertility, and more.
If they’re successful, Hims could see a major boost in their subscription metrics, which currently sit at 260,000 subscribers.
One thing Hims may want to work on in the future is insurance programs. They don’t currently accept insurance, instead focusing on providing discounts to make healthcare more affordable for those who choose not to use insurance for whatever reason. However, many patients in the US require insurance coverage to afford health and wellness services, so it’s a catch-22 in terms of broadening their audience.
The issue of insurance becomes even more important as Hims continues to develop partnerships with big companies like Privia Health, which allows subscribers access to Privia providers in certain states.
Once the SPAC deal goes through, existing Hims investors will hold 84% of the combined company. Meanwhile, existing Oaktree investors amount to 12% while PIPE (private investment in public equity) investors keep the remaining 4%.
When is the Hims IPO date?
In the four days ahead of the October 1, 2020 IPO announcement, Oaktree (the SPAC) saw their shares jump more than 8%. But once the merger occurred, they fell back down, just shy of where they were previously. This means the merger’s popularity with investors isn’t as red hot as the company’s executives might’ve hoped for.
Originally, Hims and Oaktree planned to finalize the deal by the end of the fourth quarter of 2020. However, they’ve pushed the date back to January 19, 2021.
Investors can already purchase Oaktree’s current ticker, which trades under “OAC” on the NYSE. On January 19, the ticker will shift to “HIMS” but the exchange will stay the same. New shares will be instituted to account for the standard SPAC starting price of $10.00 per share.
What investors should know about Hims
No company is immuned from controversy, but that doesn’t mean you should ignore it. Hims works outside of the “big pharma” bubble, but that doesn’t mean they’re not involved in pharmaceuticals.
First of all, Hims sells a female dysfunction medicine called Flibanserin. Experts say it can cause depression, hypertension and potentially even tumors. According to the Industrial Psychiatry Journal, “Women taking this drug must well be educated about the adverse events associated with this drug and the possible interactions. Until further data are available, a cautious use of the drug is warranted.”
What’s more is that Hims has marketed anti-anxiety medication in a way that promotes off-label use. They sell beta blockers, which aren’t specifically designed for anxiety. Beta blockers also can become dangerous in high doses, which is problematic considering they have psychologically addictive tendencies.
One journalist met with Dudum and the Hims brand leader Hillary Cole. Both of the company’s executives admitted to taking beta blockers just an hour before the meeting—touting the drug’s wonders for calming the nerves.
Image Source: Slate
These examples and more show that Hims could very well be a frequent face in courtrooms in the years to come. Pharmaceutical companies are territorial, and Hims is hawking off-label medications in a sort of prescription no-man’s land.
Regardless of controversy, the newly public company will take part in the shareholder voting process that is status quo in the stock market. CEO Dundan holds a whole lot of voting power (90%, to be exact). This leaves investors in the general public with just a smidge of power during annual votes.
On the other side of the coin, Hims has a real chance to flourish.
Digital health raked in about $8 billion in funding in the third quarter of 2020, up from an already record-setting $5.8 billion in the previous quarter. That’s a thriving sector to be a part of. Even though Hims is much smaller than competitors like Teladoc and Amwell (which have valuations of $20 billion and $6 billion, respectively), they have the potential to leave their mark once they expand their services. And since they operate in a direct-to-consumer style instead of direct-to-business-to-consumer like the others, it could give them the upperhand.
All things considered, investors will want to keep these pros and cons in mind as they figure out whether or not a Hims IPO investment is the right move.
Hims is one company in a growing lineup that is redefining what it means to go public via a SPAC. As recent as the 1980s, blank-check companies were associated more closely with penny-stock frauds. Since then, regulations have helped SPACs clean up their name. And while they aren’t always successful, the 120 SPACs that occurred over the course of 2020 prove there’s more than one path for companies seeking the public domain. The Hims IPO date is just a part of a much larger wave.
Related: How to know if a stock is risky