The small world of InsurTech has a new player, one that could present an exciting investment for those with higher risk tolerance.
Metromile (NASDAQ: MLE) went public this week via a SPAC, a trend that has been particularly hot over the last year. It combined its business with INSU Acquisition Corp II (NASDAQ: INAQ) in a deal that included $230 million cash-in-trust provided by INSU II and $170 million of proceeds from the private placement of INSU II’s shares. INSU II previously went public on the 6th of November 2020.
Metromile is a digital insurance company for cars with a focus on data. This company will now be equated alongside the likes of Lemonade and Root, becoming a small, yet disruptive force in the insurance world. So, here is a rundown of Metromile as we know it as we look into whether the stock is a good buy right now.
Metromile as a business
With an estimated 65% of drivers overpaying for car insurance, Metromile is a business that decided to tackle that problem, introducing a pay-by-the-mile service. Once you sign up you are then given a small device, much like a dongle, to install in your car. It tracks your driving behavior and your mileage. Your price is then calculated by the data collected. Metromile, therefore, is a cloud-based software-as-a-service (SaaS) business.
In fact, there are several companies currently using similar technology such as dashcams and speedometers to help keep insurance premiums low and provide evidence should an accident occur. Metromile is using its dongle software instead to track mileage upon which customers pay.
To attract new customers, it has a unique method using its ‘Ride Along’ app. Potential customers can download its app and then use it to work out if they qualify as a low-mileage driver and then calculate estimated savings if they switch over to Metromile. The company has claimed that its users could same around 47% of what they were previously paying. Since the launch of this app in Q2 2020, the organic referral rate sits at 25% whilst its conversion rate is 20%.
On top of these impressive numbers, the company can also license its technology platform to other insurers around the world. Its cloud-based software allows clients to efficiently deal with and resolve claims, help reduce fraud-related losses and increase employee productivity. Metromile Enterprise is the global seller, as this cloud-based software as a service enables carriers to operate with greater efficiency, automate claims to expedite resolution, reduce losses associated with fraud, and unlock the productivity of employees
Is $MILE A Good Buy?
On the one hand, public insurance companies work well as we have seen from Lemonade and Root, so the expectation that a car insurance company works just as well is high. From what we can see a prediction of over 92,000 policies were to be in force by the end of 2020.
As the company moves forward, it will need to produce regular and reliable growth to offset its continued annual losses. In 2018 and 2019 respectively Metromile incurred net losses of $49.4 million and $57.2 million. For the first 9 months of 2020, it incurred a total operating loss of $32.3 whilst its cash and cash equivalents was around $21 million. The company needs to generate more revenue to break this cycle of losses.
However, as a new, innovative, tech company in a traditional industry, Metromile is a disruptor of the car insurance market, as such, it predicts to increase its number of policies in force by roughly 40% over 2021 to 128,864 and a further 440% to 696,277 by 2024. If it can stay on target, Metromile will be bringing in close to $1 billion in its annual insurance revenue.
It has two segments of its business, insurance, and software licensing, which is expected to be bringing in a further $48 million annually by 2024. Metromile is also backed by big names such as Chamath Palihapitiya and it has some heavy hitters on its team including Betsy Cohen, the founder of Bankcorp. These names highlight the potential for Metromile to go far in the InsurTech world.
For investors, this company will be a risky choice, but it could present some serious growth within the next 4 years should it play its cards right. Even if you aren’t fully convinced by this point, it is definitely a company to watch going forward.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.