Author Topic: TRUP - Trupanion  (Read 15018 times)

Snorky

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Re: TRUP - Trupanion
« Reply #30 on: July 31, 2018, 06:11:11 AM »
Does anyone happen to have Artem Fokin's thesis by Caro-Kann Capital and can they make it available to me?

Best Regards,

Benjamin


cubsfan

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Re: TRUP - Trupanion
« Reply #31 on: July 31, 2018, 10:14:32 AM »
Why don't you contact Artem directly?

He shared the presentation with the Manual of Ideas, and he may be happy to share with you.

cubsfan

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Re: TRUP - Trupanion
« Reply #32 on: July 31, 2018, 10:27:00 AM »
Does anyone happen to have Artem Fokin's thesis by Caro-Kann Capital and can they make it available to me?

Best Regards,

Benjamin

Just as an aside, Artem has posted the last 2 presentations he did for Manual of Ideas on his website (Commerce Hub & Trip Advisor), he may do the same for Trupanion.  And the Trip Advisor presentation was outstanding.
« Last Edit: July 31, 2018, 10:29:12 AM by cubsfan »

mwtorock

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Re: TRUP - Trupanion
« Reply #33 on: July 31, 2018, 11:05:30 AM »
Does anyone happen to have Artem Fokin's thesis by Caro-Kann Capital and can they make it available to me?

Best Regards,

Benjamin

Just as an aside, Artem has posted the last 2 presentations he did for Manual of Ideas on his website (Commerce Hub & Trip Advisor), he may do the same for Trupanion.  And the Trip Advisor presentation was outstanding.

Yeah agreed that TripAdvisor presentation was awesome.

Snorky

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Re: TRUP - Trupanion
« Reply #34 on: July 31, 2018, 10:10:31 PM »
I e-mailed Artem directly and he send me the thesis. Thanks anyway guys.

Cigarbutt

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Re: TRUP - Trupanion
« Reply #35 on: November 05, 2018, 04:24:55 PM »
To add more content to the thread, I wanted to copy some thoughts I had on valuation. Hopefully I'm way off base and someone can convince me it's cheap  ;D
"It looks like they could hit $1B in revenue around 2025. At that point they'd be at scale targeting a 15% discretionary margin (per management). Discretionary margin doesn't include sales and marketing expense and stock-based comp. If sales and marketing margin is 3% at scale (vs 7.9% in 2016) and stock-based comp is 1% at scale (vs 1.5% in 2016), that puts pre-tax margins at 11% (15% - 3% - 1%). By then their NOLs should be burned off so they'd be paying 34% in taxes, which puts their net margin at 7.26%  (11% * (1 - .34)).
So $1B revenue * 7.26% net margin = $72.6M net income / 35M shares outstanding (2% share dilution per year from now until then) = $2.07 EPS. $2.07 EPS * 25 (high quality company with plenty of runway still left) = $51.75. A $51.75 share price after 2025 earnings gives us a 10.8% IRR from today's price.
Given the above, it seems like the market is pricing it fairly. And most of those assumptions above are based on management's own guidance of what their financials will look like at scale. This means for the company to be significantly undervalued today, Darryl's own guidance would have to be way too conservative, which almost never happens from management.
FWIW, using my same 2025 results above, today's share price would have to be $10 to get a 20% IRR, which obviously isn't happening anytime soon."
I looked at it recently too, and I came away liking it more than I thought I would. There's a ton of runway, they require no capital, are differentiated in a commoditized market (insurance), and have a nice balance sheet.
The reason I haven't pulled the trigger is because 1) the growth is pretty impossible to predict and 2) it's even harder to predict the quality of the policies of an insurance companyŚlet alone a relatively new one. That's just too many unknowns for me, plus the valuation isn't great as you've mentioned. But definitely one on my watch list.
I apologize for my ignorance here, but what makes them differentiated from other pet insurance and/or allows no capital?  FFH made a pet insurance acquisition a few yreaes back so I'm interested in how this one can be much different than the rest.

I came to TRUP after reviewing pet insurance and looking at a relevant Fairfax sub.
https://www.cfpetinsurance.com/

So TRUP can maintain a relatively low level of capital because of the predictability and short tail nature of policies. It has chosen to use a subscription-like model to develop the business and to report financials but they still need to file with regulators under the property/casualty rubric even if the design of policies is more like health premiums (!). TRUP is a strange animal. From the following document, it looks like TRUP needed to elevate its game in terms of regulatory requirements.
https://www.dfs.ny.gov/insurance/exam_rpt/12190f14.pdf

For valuation, future developments are likely to be positive but the exercise is one of discounting. Need to do more work to assess moat (quality and durability). The strategy to enter the market through the vets is the right one and scale effects support the idea behind the internal funding of the growth. Will they become a truly low cost operator?

The recent share issue (large and IMO at a premium to IV, to buy the HQ) is puzzling.

On balance, this is shaping up to be a potentially interesting idea.

peterHK

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Re: TRUP - Trupanion
« Reply #36 on: November 06, 2018, 06:41:53 AM »
It's an insurance co trading at 20x book value, only covered on the street by software analysts. The CEO has deliberately tried to market himself as an "outsider" and all the compounder bros love this.

I don't get how the business model makes sense or why it should trade at 20x book value, or why the traditional methods of valuing an insurance company shouldn't apply here. It goes in the same bucket as people who think Tesla is like Apple and deserves a steady state 20x multiple.

Broeb22

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Re: TRUP - Trupanion
« Reply #37 on: November 06, 2018, 10:12:46 AM »
How comparable do you think a business like FTDR is to TRUP? Frontdoor was spun out of Servicemaster and they operate home service plans under the American Home Shield banner and a few others.

There are some interesting similarities to FTDR and TRUP:

Pets and Home appliances have finite lives and require regular care and sporadic large costs.

Both make heavy use of marketing because most people are skeptical of their benefits. Marketing goes through realtors with home service plans, while pet insurance goes through the vet.

Both are in theory underpenetrated but a decent percent of the "potential" market has already tried the service before and had a poor experience.

Home service is considered insurance by many, particularly since FTDR's competitors are held by insurance companies.

Notably, for those questioning the lack of book value here, FTDR spun out with negative equity from SERV.

So perhaps either there is a big problem for FTDR as well because it does not have the equity to absorb abnormally high losses, or perhaps FTDR is a decent example of another insurance-like business that holds very little capital.

I guess the other point this whole mental exercise proves is that perhaps both fields do not price their products competitively enough if they truly make a profit every year and they don't really need to hold capital because they make money hand over fist? But who would come in to offer products that price this risk more fairly (and cheaply) to consumers? I don't know that Bezos wants to insure Ol' Yeller's heartworm condition...

peterHK

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Re: TRUP - Trupanion
« Reply #38 on: November 06, 2018, 10:34:13 AM »
How comparable do you think a business like FTDR is to TRUP? Frontdoor was spun out of Servicemaster and they operate home service plans under the American Home Shield banner and a few others.

There are some interesting similarities to FTDR and TRUP:

Pets and Home appliances have finite lives and require regular care and sporadic large costs.

Both make heavy use of marketing because most people are skeptical of their benefits. Marketing goes through realtors with home service plans, while pet insurance goes through the vet.

Both are in theory underpenetrated but a decent percent of the "potential" market has already tried the service before and had a poor experience.

Home service is considered insurance by many, particularly since FTDR's competitors are held by insurance companies.

Notably, for those questioning the lack of book value here, FTDR spun out with negative equity from SERV.

So perhaps either there is a big problem for FTDR as well because it does not have the equity to absorb abnormally high losses, or perhaps FTDR is a decent example of another insurance-like business that holds very little capital.

I guess the other point this whole mental exercise proves is that perhaps both fields do not price their products competitively enough if they truly make a profit every year and they don't really need to hold capital because they make money hand over fist? But who would come in to offer products that price this risk more fairly (and cheaply) to consumers? I don't know that Bezos wants to insure Ol' Yeller's heartworm condition...

You mean the same FDTR that's down 30% today?


Broeb22

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Re: TRUP - Trupanion
« Reply #39 on: November 06, 2018, 12:53:22 PM »
Congratulations, you correctly looked up a ticker.

For what it's worth, I'm not picking sides in this. I have no position.

But Trupanion is potentially an interesting business if I could ever get comfortable with its underlying profitability. I currently have no idea what that is, but FTDR maybe offers a comparison point for those searching for one. I have found my current cash flow-focused investing has not served me as well when I don't see the value being created by an Amazon or Salesforce or you name it. So I want to be open-minded to the possibility that there could be value in TRUP, but it's honestly tough to do.

Overall probably not a good sign that FTDR is worth 3x as much as TRUP when it has 4x the revenue of TRUP, and FTDR actually generates cash.