Root Insurance IPO Filing: Key Insights and Financial Breakdown
Last night, Root Insurance officially filed to go public, marking the second major insurtech IPO of 2020. Following in the footsteps of Lemonade, which went public earlier this summer, Root is now stepping into the spotlight with its own unique financial story.
Root vs. Lemonade: A Tale of Two Insurtech IPOs
While Lemonade made waves with its rental and home insurance offerings, Root has carved out a niche in the automotive insurance market. Competing against established players and startups like MetroMile and Clearcover, Root’s IPO filing provides a fascinating look into its growth trajectory and financial health.
Key Highlights from Root’s IPO Filing
Policy Growth and Market Expansion
- Active Automotive Policies:
- 2018: 111,736
- 2019: 281,310 (151.8% YoY growth)
- H1 2020: 334,327 (51.6% YoY growth from H1 2019)
- New Offering: Root recently added rental insurance to its portfolio, though it remains a small fraction of its premiums.
Financial Performance: The Good and the Challenging
Revenue Growth:
- 2018: $43.3 million
- 2019: $290.2 million
- H1 2020: $245.4 million (135.7% YoY increase)
Margins and Profitability:
- Gross Margin: Improved from -28.8% in 2019 to -3.4% in H1 2020.
- Adjusted Gross Margin: Turned positive at +3.0% in H1 2020.
- Loss Ratio: Dropped from 99.9% in 2019 to 81.3% in H1 2020, partly due to reduced driving during the pandemic.
Net Losses:
- 2018: $69.1 million
- 2019: $282.4 million
- H1 2020: \(144.5 million (up from \)97.0 million in H1 2019)
Valuation Insights: How Does Root Stack Up?
Using Lemonade’s valuation multiple (15x gross written premium) as a benchmark, Root’s H1 2020 direct written premium of \(306.5 million (annualized to \)613 million) suggests a potential valuation of $9.2 billion. However, this comparison comes with caveats, as Root and Lemonade operate in different insurance segments.
Cash Burn and IPO Implications
Root’s cash burn has accelerated:
- 2018: $26.1 million
- 2019: $127.2 million
- H1 2020: 64% higher than H1 2019
With \(241 million in cash as of June 2020, Root’s IPO will be critical to funding its path to profitability. The company has listed a placeholder figure of \)100 million in its S-1, but the final raise could be significantly higher.
Why Root’s IPO Matters
As one of the first insurtech startups to go public, Root’s performance will set a precedent for others in the space. Its ability to balance rapid growth with improving margins will be closely watched by investors and compe*****s alike.
Root plans to list on the Nasdaq under the ticker “ROOT.” Stay tuned for updates on its pricing and debut.
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