Pets are part of the family and we care about their health and happiness as such. But it’s hard for pet owners to accurately budget for their pets’ healthcare expenses when they get sick or injured. Trupanion (NASDAQ: TRUP), a leading provider of pet medical insurance, helps pet owners take the guesswork out of the cost of pet healthcare. As the company continues to grow rapidly, investors have three main reasons to take a closer look.
Pet insurance is in its infancy
When Darryl Rawlings was 14, his family could not afford to have their dog Mitzi operated on. Inspired by this experience, Rawlings founded Trupanion in 2000 with a mission to make the best possible medical care more affordable and accessible to pet owners.
Pet insurance has grown in popularity over the past two decades, yet less than 3% of the 180 million pet dogs and cats in North America are registered for insurance. The United States and Canada lag behind some European counterparts like the United Kingdom and Sweden, where 25% and 40% of pets are covered by insurance, respectively. Considering that 120 million pets in North America visit veterinarians each year, the potential market opportunity for Trupanion can be very compelling if pet insurance adoption in North America can reach even a fraction of what we see in Europe.
Trupanion built a strong moat with two decades of learning
Insurance companies succeed in part because they are able to predict payouts to their customers with reasonable accuracy. As an early entrant into the industry, Trupanion has a natural edge over its competition with its two decades of data on pets of different breeds, pet care spending, and pet owners. The insights gained from this data help Trupanion more accurately assess the risk of each policy and price its policies to avoid losing money.
The company, with its growing understanding of pet care, is also delivering more and more value to customers. Trupanion believes it offers the broadest coverage in the industry with comprehensive lifetime pet coverage, encompassing hereditary and congenital conditions with no payout limits. More and more customers choose Trupanion, stick to their insurance plans and pay more.
|Total registered pets (thousands)||344||423||521||647||863||1,104|
|Average Monthly Retention||98.60%||98.63%||98.60%||98.58%||98.71%||–|
|Avg. monthly income per animal||$47.82||$52.07||$54.34||$57.52||$60.37||–|
The company has developed strong relationships with veterinarians, whose credibility makes customers more likely to sign up when veterinarians recommend Trupanion’s services. Trupanion has dedicated sales staff working with veterinarians and offers these veterinarians a patented veterinarian software platform that streamlines the financial aspects of pet healthcare for veterinarians and owners. The software can send insurance payments directly to veterinary offices as soon as clients leave, eliminating additional paperwork and saving everyone time and effort. It also provides veterinarians with all relevant information about the animal in question and its previous treatments, complaints and pre-existing conditions. Veterinarians and owners can review various treatment options and make an informed decision for the next course of action. These advantages helped Trupanion establish a strong competitive moat.
Trupanion translated its early lead and significant market opportunity into rapid revenue growth. By the end of the third quarter, Trupanion reached 1.1 million total registered pets, up 37% year over year. In the first nine months of 2021, the company grew revenue by 40% year over year, reaching $504.6 million. Trupanion has now grown its revenue by more than 20% for 56 consecutive quarters.
Long-term vision and effective execution for continued success
Trupanion holds a leading position in its industry, but it faces growing competition. There are established competitors such as National insurance and Allstate, emerging competitors such as Lemonade, and specialty insurers for small pets such as Healthy Paws.
Trupanion will need to continue to reinvent its business and execute a clearly defined long-term strategy to fend off the competition. Founder and CEO Rawlings outlined a five-year plan to reach $1.5 billion in annual revenue by 2025. To achieve this goal, Trupanion plans to expand partnerships, enter international markets, grow other types of pet insurance more suited to different segments. customers, and also introduce new product categories such as pet food and GPS devices for locating pets. The company recently partnered with the popular online pet food and service company Soft, allowing Chewy’s 20 million customers to purchase Trupanion’s insurance plans on Chewy’s website. Although the two companies did not disclose details of the partnership, it gives Trupanion access to a very large cohort of potential customers.
Investors should remember that Trupanion is not yet profitable as the company continues to invest in technology, sales and marketing to drive growth. For the first nine months of 2021, Trupanion spent 20.4% of its revenue on operating expenses, compared to 16.7% for the same period last year. As a result, the net loss margin worsened to around 6% from less than 1%, and the company burned through $6.2 million in cash, after posting $13.2 million in free cash flow. during the period of the previous year. Although its losses are quite small at the moment, investors should keep a close eye on Trupanion’s operating expenses and focus on profitability.
The current setback may be an opportunity
Similar to many high-flying growth stocks, shares of Trupanion have been battered as part of the market sell-off, down around 50% from their November 2021 highs. negotiate at an estimate of the sales price. around 5.6, still at the top of its previous trading range. However, Trupanion’s growth record, standing in the industry, and long track ahead of him probably justifies this bounty. Now may be the time for long-term investors to add this strong company to their portfolio.
TRUP PS Ratio data by YCharts
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