It would have been inconceivable just a few weeks ago to think that U.S. stocks would rebound the way they have, with the S&P 500 up more than 40 percent as of this writing since its March 23 closing low. Likewise, you wouldn’t think tech upstarts would go ahead with initial public offerings (IPOs) amid a U.S. recession, a global pandemic and social unrest. And yet, we’ve seen a spate of FinTech, InsurTech and investment firms rooted in financial services list on public exchanges in recent weeks — and do pretty well with their IPOs.
That’s a nod to the sea change underpinning the financial sphere in general, and the recognition by investors that the Great Digital Shift is upon us. The overarching theme is that marketplaces done digitally can streamline the way things have always been done, doing away with paper and face-to-face meetings.
In only the latest example, Lemonade, an insurance-tech firm that focuses on homeowners’ and renters’ policies, filed to go public on the New York Stock Exchange on Monday (June 8). The company operates as a property and casualty insurance carrier, relying on artificial intelligence and a digital platform that can collect data and perform automated underwriting processes.
Looking at the company’s S-1 filing with the U.S. Securities and Exchange Commission, the financials show a growing top line despite the net losses that tend to be a hallmark of young, tech-driven companies. For the three months ended March 31, Lemonade reported $25.3 million in net earned premiums compared to $10.5 million a year ago. However, net losses accelerated to $36.5 million from $21.6 million a year earlier.
Still, Wall Street might be focusing on the fact that Lemonade is backed by Japanese tech investing giant SoftBank, which has had its ups and downs over the past several months. And Lemonade’s expected valuation might garner headlines at a reported $2 billion.
But digging into the filings, we see a bit more of the aforementioned sea change in a world where financial services are delivered digitally. As Lemonade wrote in its S-1: “Approximately 70% of our current customers are under the age of 35, and about 90% of our customers said they were not switching from another carrier.”
The company also noted that while the Federal Reserve has found that an adult American under 35 has about an $11,000 median net worth, that should grow 10 to 15 times as those consumers reach their 40s and 50s. And net worth peaks at 25 times that after age 75.
Lemonade said its entry-level $60-a-year renters’ policy corresponds to $10,000 in possessions, but that for customers into their 40s, policies are about $600. The company also said clients tend to “graduate” from renters’ policies to Lemonade condo and homeowners’ policies over time. Here we see the importance of the platform model and customer stickiness that target cross-pollination as time (and relationships) go on.
The Lemonade IPO news comes in tandem with reports that Vroom, the online platform focused on vehicle sales, raised more than $467 million from its own recent IPO. Vroom matches buyers and sellers while still maintaining a stake in at least some dealerships, thus offering a hybrid online/offline model.
The company lost $41 million on revenue of $376 million for the quarter ended March 31, while it had $27 million in red ink on $235 million in revenues for the same period a year ago.
Vroom CEO Paul Hennessy told PYMNTS CEO Karen Webster recently that the pandemic had a “small chilling effect” on his firm, but not a total shutdown. That’s due in part to the fact that digital conduits can still get cars into consumers’ driveways without customers having to visit dealerships.
Meanwhile, Shift4 Payments last week surged almost 50 percent following an IPO that raised about $345 million. Interestingly, the company processes payments for the hospitality sector, which has been among the industries hardest hit by the COVID-19 pandemic and the resulting U.S. recession.
The firm offers a suite of integrated multichannel payment products and services, and counts KFC, Hilton, Kohler and The Metropolitan Museum of Art among its clients. As noted in this space last month, Shift4 Payments handled in excess of 66,000 merchants representing over $6 billion in end-to-end payment volume during the first quarter.
The bottom line: Volatility is name of the game on Wall Street these days — but in at least the corner of the market devoted to commerce done in new, digitally driven ways, investors are bullish on the future.