This year began with a boom in which SPACs quickly began to dominate the market. They started helping young and early stage companies make their public debut before they would have otherwise been able to. The SPAC craze seems to have subsided, though, and partnering with them has often yielded negative results. Investors are seeing that today with Hippo (NYSE:HIPO) stock.
What Happened to HIPO Stock?
Hippo Holdings, a digital home insurance provider, sought to go public at a time when the American housing market was booming as a result of the Covid-19 pandemic. That decision made sense. As competitor Lemonade (NYSE:LMND) demonstrated through its positive stock performance which earned it a “hold forever” recommendation on InvestorPlace, the insurtech market was red hot. This all came as Americans sought to purchase family homes and ensure their assets.
Just before the company was slated to begin trading, though, merger partner Reinvent Technology Partners saw its shares sink as investors requested their money back. This resulted in 80% of their initial capital being withdrawn and roughly $192 million being returned to investors. This was not a good start for the company.
HIPO stock has never really recovered. Today marks an especially difficult day for share prices, as PIPE (private investment in public equity) investors are finally able to offload their shares as per the merger agreement. As a result, share prices are down almost 15% on the day, as of this writing.
Why It Matters
Given its rough start to public trading, it is hardly surprising that investors are jumping ship at the first opportunity. Since its Aug. 3 debut, the company has never performed well. In fact, share prices have decreased by more than 55%.
Even with the initial investor pullout, the company still began trading with a $5 billion valuation. The stock’s performance indicates, though, that this hasn’t done much to help the company grow. While it has only been one month since Hippo stock made its debut, investors have little reason to foresee a turn around.
What Happens Next With Hippo?
Hippo stock will continue to sink as a result of this second investor pullout. Other companies have recently dealt with similar scenarios, such as electric vehicle startup Lucid Motors (NYSE:LCID), which saw shares decline on Sept. 1 after its PIPE investors also took the opportunity to offload their shares as the company’s lock-up provision ended.
Unlike Hippo, though, Lucid has given its longer-term investors reason to be optimistic. Earlier this week, it promised to debut some of its highly anticipated products to members of media and financial communities. It is also worth noting that Hippo has never received the type of buzz and anticipation that Lucid has enjoyed, despite a disappointing initial stock performance.
Unless this insurtech startup has something in the works that the public doesn’t know about yet, its investors are likely be in for more disappointment. More shareholders will offload when they are able and as of now, there is no reason for them to do otherwise.
On the date of publication, Samuel O’Brient 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.