Sometimes highly touted special purpose acquisition company (SPAC) mergers go smoothly; other times they fail to live up to the hype. One of this year’s more disappointing SPAC mergers involved Israeli insurance technology company Hippo (NYSE:HIPO). Investors have seen the value of HIPO stock fall by more than half in the roughly two months since the merger.
The insurtech company sells homeowners insurance online. “By harnessing real-time data, smart home technology, and a growing suite of home services,” the company claims to have “redefined the home insurance experience at every stage of the relationship around customer needs.”
That’s an ambitious claim for a small startup, but the company’s recent financial data shows it is doing something right. And despite the hiccups in its early trading days, HIPO stock may present a bargain for investors who are willing to hold shares for a rebound.
A Closer Look at HIPO Stock
In early August, Hippo merged with Reinvent Technology Partners, which previously traded under the ticker RTP. Reinvent was backed by Microsoft’s (NASDAQ:MSFT) LinkedIn co-founder Reid Hoffman and Zynga (NASDAQ:ZNGA) founder Mark Pincus. With tech execs of that caliber on board, you’d think Hippo’s market debut would have been a huge success.
But that wasn’t the case. As InvestorPlace contributor Robert Lakin described at the time, shares of RTP were falling ahead of the merger on reports that investors were asking for their money back. According to Israeli business daily Calcalist, 83% of the capital raised by Reinvent was pulled and $192 million was returned to investors. The Calcalist report further stated that only 19.2 million of the 23 million issued shares were sold.
Despite this, the company kept its $5 billion valuation and the press release accompanying the merger described Hippo as “a well-capitalized public company.”
I suppose the term “well-capitalized” is an expression of an opinion, but HIPO stock didn’t hold up. Within three weeks, shares tumbled from the $10 area to a low of $3.78. Today, they sit nearly 20% above that low, trading around $4.50.
Going Beyond the Recent HIPO Stock Turmoil
Now, given the hype and low share price, it wouldn’t surprise me if HIPO stock became a short squeeze target for Reddit traders at some point. But a look at the company’s most recent financial report may give investors a better reason to consider buying the beaten-down shares.
Hippo’s second-quarter financial data reveals a number of bright spots for the company.
Total generated premium increased 101% year over year to $159 million, causing management to raise its full-year guidance for total generated premium to between $560 million and $570 million, up from $544 million previously. The company also said it ended the second quarter with more than $500 million in total generated premium in force, representing a 96% year-over-year increase.
Quarterly revenue jumped 76% over the same period last year to $21 million, while Hippo’s year-one customer retention improved to 88%.
The Bottom Line on HIPO Stock
What we have here is a good news, bad news situation. The price action in HIPO stock since the SPAC merger has been awful – that’s the bad news. The good news is that Hippo’s on the right fiscal track.
Knowing this, investors might choose to stay the course with HIPO stock as the share price could double from here if it returns to the pre-SPAC-merger price of $10.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.