Hims & Hers: Navigating Regulatory Headwinds and Subscription Model Vulnerabilities

The subscription-based telehealth model has long been a double-edged sword for investors: high growth potential paired with razor-thin margins and regulatory fragility. Hims & Hers Health (HIMS), a once-celebrated disruptor in digital healthcare, now finds itself at the epicenter of a regulatory storm. With the Federal Trade Commission (FTC) scrutinizing its subscription cancellation practices and advertising claims, the company's long-term viability hinges on its ability to adapt to a rapidly shifting legal and competitive landscape. For investors, the question is no longer whether Hims can grow, but whether it can survive the structural risks embedded in its business model.

Regulatory Scrutiny: A Looming Threat to Unit Economics

The FTC's year-long investigation into Hims & Hers centers on two critical vulnerabilities: subscription cancellation complexity and deceptive advertising. Consumer complaints allege that the platform makes it unnecessarily difficult to cancel subscriptions, with some users reporting repeated charges after attempting to terminate their accounts. The agency is also examining whether Hims' marketing of compounded GLP-1 drugs—such as its now-discontinued Wegovy knockoffs—crosses into fraudulent territory.

These issues are not theoretical. The FTC has previously targeted Amazon and Uber for similar practices, and its focus on the “Restore Online Shoppers' Confidence Act” (ROSCA) suggests a willingness to enforce strict penalties. If Hims is found in violation, remedies could include civil fines, consent orders requiring simplified cancellation processes, or mandatory refunds to consumers. For a company that relies on recurring revenue from 2.4 million subscribers, even minor changes to cancellation policies could trigger a surge in churn and erode customer lifetime value.

The Novo Nordisk Fallout: A Canary in the Coal Mine

The termination of Hims' partnership with Novo Nordisk in June 2025 exposed a deeper vulnerability: overreliance on compounded drugs. Novo Nordisk accused Hims of distributing unauthorized versions of Wegovy, a claim that led to a 34% single-day stock plunge and a class-action lawsuit. This partnership had been a cornerstone of Hims' strategy to dominate the $20 billion obesity treatment market.

The fallout underscores a broader trend: as Novo Nordisk and Eli Lilly scale up supply of branded GLP-1 therapies, the relevance of compounded alternatives is waning. Hims' pivot to personalized, smaller-dose formulations has faced regulatory resistance, and its Q2 2025 revenue from GLP-1 drugs fell 7% sequentially to $190 million. This decline, coupled with the FTC probe, has forced the company to reorient its business toward lower-margin categories like hair loss and sexual health—a shift that may not offset the loss of high-margin GLP-1 sales.

Financial Resilience vs. Structural Risks

Hims' Q2 2025 financials paint a mixed picture. Revenue grew 73% year-over-year to $545 million, driven by a 31% subscriber increase to 2.4 million. However, average revenue per user (ARPU) fell from $84 to $74, and free cash flow remains negative at -$69 million. The company's full-year guidance—$2.3–2.4 billion in revenue and $295–335 million in Adjusted EBITDA—hinges on maintaining current churn rates and customer acquisition costs.

The problem? Regulatory and competitive pressures could upend these assumptions. If the FTC mandates clearer disclosures or easier cancellations, Hims may face a 30–50% increase in churn, as seen in past cases involving subscription-based services. Similarly, the rise of branded GLP-1 drugs could reduce demand for Hims' compounded offerings, forcing the company to rely on lower-margin categories with thinner profit margins.

Investment Implications: A High-Risk, High-Reward Proposition

For long-term investors, Hims & Hers presents a paradox: a high-growth business model with a history of regulatory missteps. The company's ability to navigate the FTC probe and adapt to the GLP-1 market shift will determine its fate.

Key risks to monitor:
1. Regulatory outcomes: A consent decree requiring operational changes could increase churn and reduce marketing effectiveness.
2. Competitive dynamics: The rise of branded GLP-1 drugs may render Hims' compounded alternatives obsolete.
3. Reputational damage: The Novo Nordisk fallout and FTC scrutiny have eroded trust, complicating future partnerships.

Potential catalysts for recovery:
- Successful restructuring of the subscription model to align with FTC requirements.
- Expansion into international markets (e.g., Canada, UK) with less regulatory friction.
- Diversification into high-growth categories like hormone therapy and longevity.

Conclusion: A Cautionary Tale for Telehealth Investors

Hims & Hers' story is emblematic of the broader challenges facing subscription-based telehealth companies. While its financials remain robust, the regulatory and operational risks are substantial. For investors, the key takeaway is clear: compliance and transparency are non-negotiable in a highly regulated industry.

If Hims can pivot to a compliant, diversified business model—while maintaining its core demand for telehealth services—it may yet recover. But given the current trajectory, the stock remains a high-risk bet. Investors should proceed with caution, prioritizing companies with stronger regulatory guardrails and sustainable unit economics. In the evolving telehealth landscape, survival often hinges on more than just innovation—it requires foresight.