It's too early for Hippo Holdings to destroy home insurance – InvestorPlace

A very popular term in business is disruption, or bringing about radical change through innovation. Hippo Holdings (NYSE:HIPO) is a digital household insurance that went public in August. Potential HIPO stock investors are wondering if this insurance provider will disrupt the insurance market.

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It seems to me that HIPO stock lacks vital catalysts to move it. In fact, the stock sold off a few days after it went public.

HIPO started trading at $ 10.6500 on August 3, 2021, and shares hit a low of $ 3.78 on August 23. The stock rebounded to $ 4.99 on September 23 and was recently trading at around $ 4.40 per share.

This volatility shows two things. SPACs can be volatile and not suitable for all investors. Also, some people saw something about HIPO that most other investors ignored: information.

HIPO share has got off to a difficult start

The company was on the news on Aug. 8 when it was reported that "Immediately prior to the SPAC merger, Hippo will lose $ 192 million in funding and retain a valuation of $ 5 billion."

The report said that many "investors have called for their money back in the SPAC company, with which Israel-founded insurtech company Hippo is to merge."

About 83% of the capital raised by SPAC (Special Purpose Acquisition Company) Reinvent Technology Partners has been "withdrawn" and $ 192 million returned to investors, the report said.

The question that needs to be answered is, of course, why investors are withdrawing this capital. What are the possible explanations for Hippo Holdings receiving significantly less money than planned?

There could have been differences of opinion in the implementation of the business policy. Or maybe investors found more attractive opportunities. There are also the company's second quarter results, which at the time were close to being released.

However, I am not surprised by the financial performance, and that could be one reason why these investors preferred to withdraw their capital.

In any event, this event shows a lack of confidence in Hippo Holdings' business prospects. This is not the ideal start for a company just going public. It hoists red flags.

Good and evil

The main highlights of the second quarter showed both positive and negative results.

It is positive that:

  • "Strong growth
  • 101% growth in total premiums generated
  • Raised annual forecast
  • Year 1 customer loyalty of 88%

On the negative side:

  • Operating expenses "increased 54% year over year to $ 47.0 million"
  • Hippo's net loss was $ 84.5 million, or ($ 5.98) per share, compared to a net loss of $ 24.8 million, or $ 2.01 per share, in the second Quarter 2020. "

It is not surprising that Hippo Holdings has soaring net losses. The company is trying to find a turning point. It invests in innovation to be successful with long-term growth. But does this mean it can disrupt the insurtech industry?

The industry is growing at a rapid pace

Hippo Holdings operates in the global insurtech market. According to a report by Allied Market Research, "The global insurtech market grew to 9,415.28 million in 2020.

That suggests there is a lot of growth going on for the company. But to do that, the Hippo Holdings business trenches must deliver results.

In its letter to shareholders, Hippo Holdings mentions on page 12 that the company's key economic trenches include “technology and insurance approach”, “vertically integrated insurance capabilities” and “diversified sales strategy”.

The letter also cites the company's commitment to customers. If I had to pick just one point of criticism, I would choose this one. Why? It should be a core value for every business. This is not an economic ditch, but a fundamental business principle.

If you need more information about HIPO shares

How does that add up for the HIPO share? Selling home insurance online is a very competitive market. Innovation should be very strong to make a difference. I believe that operating costs like marketing and advertising can go up to get more customers, but doing so would reduce the opportunities for profitability.

As we don't have a lot of financial data to analyze yet, it is advisable to wait and evaluate the financial performance of the HIPO share over the next few quarters. Investing in an IPO or SPAC too early is like getting your driver's license and trying to push the limits of a high performance car. It's too risky and many things can go wrong.

Playing it safe is never a bad idea, especially when investing in stocks.

I wish the Hippo Holdings business trenches would bring measurable financial results soon. Until then, it's wiser to stay on the sidelines.

At the time of this writing, Stavros Georgiadis, CFA had (neither directly nor indirectly) positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com's posting guidelines.

Stavros Georgiadis is a CFA charter holder, equity research analyst and economist. He is focused on US stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be reached on Twitter and LinkedIn.

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