Earnings season provided a window into the challenges facing publicly traded digital health companies.
Digital health companies, which largely reported their third quarter earnings over the past two weeks, laid out how they’re dealing with high cost of advertising and the need to show returns on investments. They also highlighted their wins and were bullish on trends including offering popular glucagon-like peptide-1 agonist weight loss drugs.
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Here are five takeaways from digital health’s third quarter earnings.
1. Hims & Hers’s big quarter
Direct-to-consumer telehealth company Hims & Hers was the clear winner among digital health companies reporting third-quarter earnings. The company, which has gone all in on GLP-1s, was happy to talk about other areas of growth including those within its Hers’ brand.
“I've always believed that the Hers brand has the potential to eventually match, if not surpass, the size of the Hims brand,” said CEO Andrew Dudum during the earnings call. “We surpassed 400,000 Hers subscribers in the third quarter across specialties such as dermatology. It is becoming increasingly clear that this area of our business is at an inflection point.”
Hims & Hers, which offers medications and treatments for weight loss, hair loss and mental health, reported a strong third-quarter with a profit of $75.6 million, or 32 cents per share, compared with a net loss of $7.6 million, or 4 cents per share, in the third quarter of 2023. Quarterly revenue was $401.6 million compared with $226.7 million in the year-ago-period. While many digital health companies have struggled since going public, Hims & Hers continues to post strong financials.
2. Compounded GLP-1s still favored
Hims was also bullish about its GLP-1 offerings. Dudum said the company will offer a generic version of Novo Nordisk’s diabetes drug liraglutide in 2025. He also expressed confidence in the efficacy and retention rates of compounded GLP-1s, which use similar ingredients to some of the popular weight loss medications. The company is sticking with compounded GLP-1s, which have not been embraced by all telehealth companies, even as shortages of the branded medications wane.
Hims wasn’t the only one to promote compounded GLP-1s. WeightWatchers, which has shifted its business model to cash in on the popularity of the weight loss drugs, started offering compounded GLP-1s in October within its weight management program. Interim CEO Tara Comonte said during the earnings call that demand for GLP-1s has outpaced supply, prompting the introduction of compounding solutions.
3. Ad costs hamper direct-to-consumer telehealth
One area that remains challenging for Hims & Hers, WeightWatchers and other direct-to-consumer telehealth companies is marketing spend.
WeightWatchers chief financial officer Heather Stark said advertising acquisition costs were higher in the third quarter compared with the prior year and the company was more cautious about its investments. Stark said competition in weight loss and other direct-to-consumer telehealth verticals were driving up costs, along with overall inflation.
Virtual care company Teladoc had a tough quarter thanks to a 10% decline in revenue from its direct-to-consumer mental health brand BetterHelp. The company reduced its marketing spend from the prior year and expects the trend, and others, to continue into the fourth quarter and 2025.
“BetterHelp continues to be a business in transition,” said Teladoc Chief Financial Officer Mala Murthy. “We face tough year-over-year comparisons in 2024 resulting from a decline in paying users in our existing business over the course of 2024, due to higher customer acquisition costs, which we expect to remain elevated in 2025 and steady with current levels.”
4. Enterprise push has peaks and valleys
Teladoc’s enterprise business, which it sells to health systems, insurers and self-insured employers, is a mixed bag for the company. The segment saw a slight increase in revenue and membership from 2023. It also raised guidance for integrated care membership, which means Teladoc expects to have more growth in the segment than previously anticipated.
Still, Teladoc CEO Chuck Davita, who came aboard in June, said enterprise buyers have tightened their belts in 2024 and will continue to do so in 2025.
Mental health startup Talkspace saw significant growth in its enterprise segment, including a 45% year-over-year increase in revenue and 38% increase in membership among payer customers. The company also expanded its scope by covering insured patients in Medicare and the military. Talkspace has largely transitioned from a direct-to-consumer to an enterprise-focused business over the last few years.
Sales cycles — or how long it takes customers to sign contracts — are a challenge for many companies in healthcare. Healthcare payments tech company Waystar, which went public in June, has caught on quickly to this reality, as CEO Matthew Hawkins said during the company’s earnings call the process can take up to 18 months.
5. Return on investment remains critical
With belt tightening the near-term reality, return on investment was a reoccurring focus among digital health companies reporting this quarter. Waystar is focused on tangible returns when selling to its provider customers, Hawkins said.
Medical equipment and technology company GE HealthCare saw significant growth in the U.S. market in the third quarter, particularly in its patient care segment. During a call with analyst investors, CEO Peter Arduini attributed that to the company helping its health system customers understand the return on investment for its products.
“You buy a new product, and yes, you may pay $100,000 more from us than someone else, but you can literally have it paid for in under 18 months and you're going to have it for another six to seven years,” Arduini said.
Brock E.W. Turner contributed
