Hims & Hers: Navigating Short-Sellers and Regulatory Storms in the DTC Healthcare Sector

The direct-to-consumer (DTC) healthcare model has long been a double-edged sword: it democratizes access to medical services while challenging traditional regulatory frameworks. Hims & Hers Health (HIMS), a pioneer in this space, has faced a perfect storm of short-selling pressure and regulatory scrutiny in 2025. Yet, beneath the surface of its recent turbulence lies a company with a resilient business model, a loyal customer base, and a strategic pivot toward higher-margin verticals. This article dissects HIMS's long-term viability amid these headwinds and offers a roadmap for investors navigating its complex landscape.

Financial Resilience Amid Margin Pressures

HIMS's Q2 2025 results underscore its ability to scale rapidly. Revenue surged 73% year-over-year to $544.8 million, driven by a 31% increase in subscribers to 2.44 million. Monthly online revenue per average subscriber rose 30% to $74, reflecting strong demand for personalized care in weight management and mental health. Adjusted EBITDA hit $82.2 million, up 109.4%, and net income tripled to $42.5 million. These figures validate the company's recurring revenue model, which now accounts for 98% of total sales.

However, gross margins contracted from 81% to 76%, primarily due to the expansion of lower-margin offerings like compounded GLP-1 weight loss treatments. Free cash flow turned negative at -$69.4 million, driven by inventory buildup and capital expenditures. While this raises short-term concerns, HIMS's $1.12 billion cash reserve provides a buffer. The company reaffirmed its 2025 guidance of $2.3–2.4 billion in revenue and $295–335 million in adjusted EBITDA, signaling confidence in its ability to balance growth with profitability.

Short-Sellers and Market Sentiment

As of July 31, 2025, HIMS had a short interest of 64.59 million shares, representing 33.44% of its float—a level that typically signals bearish sentiment. The short interest ratio (days to cover) stands at 2.0, suggesting a moderate risk of a short squeeze if the stock rallies. Institutional players like Hudson Bay Capital and JPMorgan have maintained significant short positions, betting on regulatory and operational vulnerabilities.

Yet, short interest has declined 1.1% from July's prior reporting period, hinting at a slight shift in sentiment. This could reflect investor recognition of HIMS's strong subscriber growth and diversified offerings in mental health and longevity care. However, the high short percentage remains a red flag, particularly given the company's recent governance issues and legal challenges.

Regulatory Headwinds and Strategic Pivots

HIMS's most significant challenge in 2025 has been its entanglement with the FDA over compounded drug practices. The termination of its Novo Nordisk partnership in June 2025—citing non-compliance with FDA regulations—triggered a 34.6% stock drop and a securities class-action lawsuit. The FDA's February 2025 decision to revoke its temporary allowance for compounded GLP-1 drugs further forced HIMS to pivot away from a revenue stream that had become central to its growth strategy.

The company now faces three active lawsuits and an FTC probe, compounding its legal risks. Internal governance flaws, including alleged disregard of regulatory warnings, have eroded trust. Yet, HIMS is responding with a strategic shift: doubling down on FDA-compliant drug sourcing, expanding into longevity care and lab testing, and enhancing transparency around litigation costs. These moves aim to rebuild credibility while diversifying revenue streams.

Long-Term Viability: A Calculated Bet

The DTC healthcare model's long-term viability hinges on HIMS's ability to adapt to regulatory scrutiny while maintaining its core strengths. Its subscriber base of 2.44 million, with 30% year-over-year growth in online revenue per user, demonstrates a scalable, sticky platform. The company's pivot to higher-margin verticals—such as hormone therapy and mental health—could offset the loss of compounded drug revenue.

However, risks persist. The legal and regulatory environment remains fraught, and short-sellers will likely continue to pressure the stock until these issues are resolved. HIMS's free cash flow burn and $100 million potential legal settlement could strain its balance sheet, particularly if growth slows.

Investment Thesis

For investors, HIMS presents a high-risk, high-reward opportunity. The company's financials and subscriber growth are robust, but its regulatory and governance challenges cannot be ignored. A key catalyst will be its ability to navigate the FDA's evolving stance on compounded drugs and demonstrate compliance. If HIMS can stabilize its legal position and execute its pivot to longevity care and mental health, it could reclaim its position as a leader in DTC healthcare.

Recommendation: Investors with a high-risk tolerance may consider a cautious long position, using pullbacks in the stock price to accumulate shares. However, those wary of regulatory and legal risks should avoid HIMS until its compliance and litigation issues are resolved. The stock's volatility, driven by short-sellers and regulatory uncertainty, makes it unsuitable for conservative portfolios.

In the end, HIMS's story is one of resilience and reinvention. Whether it emerges as a market leader or a cautionary tale will depend on its ability to balance innovation with compliance in an increasingly regulated landscape.