How will investors value MetroMile and Oscar Health?

Last night, MetroMile and SPAC INSU Acquisition Corp. II completed their combination, putting the per-mile auto insurance startup up for regular trading today for the first time.

In the wake of last year's debuts by neoinsurance companies Lemonade and Root, it's not surprising to see others test the public markets. For example, Oscar Health recently announced its intention to go public via a traditional IPO.

How the new entrants will fare, however, is not clear.

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There is something of a tale of two companies in Lemonade and Root, with the pair valued at divergent multiples and sporting very different post-IPO trajectories, at least concerning their value.

While Lemonade has appreciated greatly from its IPO price ($29) to its current value ($155.33), Root's share price dropped from its debut ($27) to today ($21.75).

This morning, as MetroMile starts its life as a public company, Oscar Health preps its own run at an IPO and other neoinsurance players like Hippo wait in the wings, let's quickly check the difference between how Root and Lemonade have fared, and then ask what we can learn from their different valuation multiples and what they might mean for the next startup insurance players hoping to go public while the IPO window is wide open.

Root, Lemonade

Lemonade's path to the public markets was one that started modestly with its first IPO pricing, improved, and then, after technically going public at a down-round valuation, took off like a rocket. Root's IPO pricing run involved what we thought of as a strong IPO range and then an above-target pricing.

But since then, Lemonade shares have rallied to several times their original price, while Root has dropped around 20%. Lemonade, for reference, sells rental insurance with an eye on going up-market in time to other forms of home-focused insurance. Root is in the auto insurance market, where MetroMile also works.

Both Lemonade and Root have yet to announce Q4 2020 results, so we'll look at their Q3 details instead. We want to get a handle for how divergently their insurance incomes are being treated. This should give us a better understanding of how Wall Street values each, then we'll apply what we learn to our two new companies. What we learn today will hopefully bear on other insurtech startups that want liquidity during the current cycle.

Results via the company, comparisons are Q3 2019:

• Root Q3 2020 revenue: $50.5 million (impaired from $75.8 million).
• Root Q3 2020 gross profit: $0.7 million (improved from -$36 million).
• Root Q3 2020 net loss: $85.2 million (improved from -$100.1 million).
• Premiums in force: $600.1 million.
• Valuation: $5.45 billion (Google Finance).

This gives us Root revenue run rate multiple of around 27x, and a premium in force multiple of just over 9x. Now let's observe Lemonade's data.

Results via the company, comparisons are Q3 2019:

• Lemonade Q3 2020 revenue: $10.5 million (impaired from $17.8 million).
• Lemonade Q3 2020 gross profit: $7.3 million (improved from $4 million).
• Lemonade Q3 2020 net loss: $30.9 million (improved from $31.1 million).
• Premiums in force: $188.9 million.
• Valuation: $9.33 billion (Google Finance).

Looking at the same two metrics, Lemonade has a run rate multiple of 222x, and a premium in force multiple of more than 49x.