The initial public offering of Root (ROOT) exceeded expectations by raising $724 million for a company that aims to disrupt the auto insurance market. The Root IPO priced late Tuesday and began trading Wednesday.
XBased in Columbus, Ohio, Root offered 26.8 million shares at $27, above its estimated range of $22 to $25. That gave Root a market valuation of about $7 billion, fully diluted.
Root stock ended the day where it started, closing at 27 on the stock market today.
The company says it is taking a different approach to the traditional way of determining auto insurance rates. For example, it uses a mobile app to measure risk based on individual performance.
"The way we design and deliver insurance is not a simple tweak to the traditional insurance model," the Root IPO filing said. "We are fundamentally reinventing insurance through technology, data science and a maniacal focus on the customer."
Root has been compared with Lemonade (LMND), an online provider of home and renters insurance that went public in early July. The Lemonade IPO raised $319 million and catapulted 139% on its first day of trading.
Root IPO Multiple Times Oversubscribed
According to IPO research and advisory firm IPO Boutique, the deal was "multiple-times oversubscribed," meaning the request for shares was much higher than what was being made available. But it was a tough day for a public offering in that the stock market was imploding.
"The combination of strong growth, a large addressable market, comps outperforming and a sterling underwriting lineup on this offering makes it attractive," IPO Boutique said.
Prospective Root customers download its mobile app to track their driving habits. This takes place before the company confirms them as customers. The app tracks 200 factors including braking frequency, turning speeds and phone usage. After that, Root tabulates all the data to offer the driver a quote for insurance.
"Our technology platform collects vast amounts of data from disparate sources, including telematics and claims," Root said. "We aggregate this data into an integrated set from which we derive proprietary insights about our customers' driving performance, most importantly around the driving behavior that causes claims."
Revenue Jumps, But So Does Loss
In the first half this year, Root reported revenue of $245.4 million. That's up 136% from the year-ago period. However, it reported a net loss of $144.5 million, vs. a loss of $97 million.
The lead underwriters of the Root IPO are Goldman Sachs and Morgan Stanley. It will trade on the Nasdaq under the ticker ROOT.
To find the other best stocks to buy or watch, check out IBD Stock Lists and other IBD research.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
YOU MAY ALSO LIKE:
Make Investing Simpler And Profit From Leaderboard
Profit From Short-Term In A Swing Trading Environment
Catch The Next Big Winning Stock With MarketSmith
Best Growth Stocks To Buy And Watch: See Updates To IBD Stock Lists
