Hims & Hers stock drops 7% despite higher guidance: what went wrong?

Shares of Hims & Hers Health fell more than 7% in premarket trading on Tuesday after the telehealth company reported a wider-than-expected second-quarter loss, as investments in branded GLP-1 weight-loss treatments and international expansion weighed on profitability.

The company reported a net loss of 37 cents per share for the quarter, compared with analysts' expectations for a loss of 1 cent per share, according to LSEG data.

The weaker bottom line came as Hims & Hers continues to reshape its business around weight-loss treatments while expanding into overseas markets.

The company said the transition to branded GLP-1 drugs resulted in $4.6 million of restructuring costs during the quarter.

It expects to return to profitability in 2027.

Revenue outlook raised despite margin pressure

Hims & Hers raised its full-year revenue forecast to between $3.1 billion and $3.3 billion, from its previous range of $2.8 billion to $3 billion.

The updated guidance includes revenue from Eucalyptus, the Australian digital health company that Hims successfully acquired in June.

Most analyst estimates do not yet include Eucalyptus.

Chief Financial Officer Yemi Okupe told Reuters that the company's underlying operations were performing ahead of its earlier expectations even without the Australian business.

"Even if you pull out Eucalyptus (from the guidance), the domestic business and the existing international business were already ahead of our guidance range," Okupe said.

The company cautioned that gross margins are likely to remain below historical levels as it accelerates investment in weight-loss treatments and international expansion.

"Do we have the ability to set the foundation for strong cash flows in the future?" Okupe told Reuters. "Resoundingly, the answer is 'yes.'"

GLP-1 expansion boosts subscriber growth

The company's investment in GLP-1 drugs is nevertheless producing stronger customer growth.

Hims said subscribers increased 19% from a year earlier to nearly 2.9 million.

Monthly revenue per subscriber also climbed 21%, highlighting the increasing contribution from its expanding weight-loss business.

Analysts said the near-term pressure on margins reflects the cost of building a larger business.

"Hims is investing in the business, which may put some pressure on near-term margins, though top-line growth continues," BTIG analysts said in a note to clients.

The international expansion could also weigh on profitability because some overseas markets generate lower margins than Hims' US operations.

"It's not that it's a bad business. It's just not as lucrative," said Paul Cerro, chief investment officer at Cedar Grove Capital Management, which owns Hims shares.

Hims remains confident in its longer-term growth ambitions and said it expects to reach its target of $6.5 billion in revenue by 2030.

Wall Street remains cautious on the stock

Hims and Hers stock has fallen about 5% this year.

Despite the company's higher revenue outlook, analysts remain divided over the stock's prospects.

The average price target from 13 analysts has risen to $30.31 from $29.77, with individual estimates ranging between $21 and $40 per share.

Based on Hims' August 10 closing price, the revised average target implies about 5% potential downside.

The consensus rating remains "Hold" among 18 analysts covering the stock, comprising four Buy ratings, 12 Holds and two Sells.

The latest results therefore leave Hims & Hers facing a familiar trade-off: rapid expansion and stronger subscriber growth today in exchange for weaker margins and delayed profitability.

Investors will now weigh whether the company's growing GLP-1 business and international footprint can justify the near-term earnings pressure and support its longer-term revenue ambitions.