Insure Your Pets And Your Portfolio With Trupanion IPO

| About: Trupanion (TRUP)


Trupanion is increasing market share and growing key financial metrics like revenue and the number of pets insured.

Less than 1% of pets are insured in the United States and Canada, representing a huge growth opportunity for Trupanion.

The company's territory managers have a chance to increase veterinarian awareness and recommendation of product.

In 2014, pet owners will spend $58.5 billion on what many consider their own family members, their pets. Of that total, $15.3 billion will be spent on veterinarian care. As medical technology increases, testing and diagnostics improve the life survival of pets. With the added years and medical testing comes increased costs. These items are a huge reason why investors should be circling the Trupanion (NYSE:TRUP) IPO (S1) this week.

Trupanion is one of the largest pet insurance companies in the United States. The company offers one simple plan with 90% coverage and no payout limits. Trupanion operates in the United States, Canada, and Puerto Rico. Trupanion has seen explosive growth in number of pets insured. The number of pets enrolled has increased every quarter for the last ten years. The company has seen the number of pets enrolled increase at a compound annual rate of 51.4%. At the end of the March quarter, Trupanion had 181,634 pets enrolled.

Trupanion is offering 7.125 million shares of its company. There will be a total of 26.559 million shares outstanding. Shares are to be offered in a range of $13 to $15, with $14 being the mid-range. At $14 a share, the company will have a market capitalization of $371.8 million. The company will use proceeds to repay a $12 million loan and for other working capital. New investors will own 26.8% of the company. Current CEO and founder Darryl Rawlings will own 10% of the company after the IPO.

Trupanion began covering pets first in Canada in the year 2000. The company then entered the United States market in 2008, taking on several companies with already established programs.

The growth for pet insurance is a huge reason to get involved with this IPO. Trupanion says 45% of vets recommend treatment that is restricted by cost. Pets are unable to communicate their symptoms, which leads to unnecessary tests being done and money spent on areas that aren't relevant. The cost to take an animal to the vet is rising, as are major surgeries and pills.

There are 193 million cats and dogs in the United States and Canada. This is a higher number than the cats and dogs in all of the European countries combined. In 2013, only 1% of pet owners had medical coverage on their cats and dogs. Other countries had much higher insured rates. In France and Denmark, 5% of pets are insured. In the United Kingdom, 25% of pets are insured. Sweden leads the way with 40% of insured pets.

The benefits to pet owners offered by Trupanion:

· Predictability of costs and peace of mind

· Awareness of cost of care

· Superior value proposition

· Exceptional member experience

The benefits to vets offered by Trupanion:

· Freedom to be the most effective advocate for pets

· More loyal client base

· Reduces potential conflicts with cost-sensitive pet owners

Strengths from Trupanion include:

· Compelling value proposition drives a powerful network effect

· Unique go-to-market strategy enables cost-efficient member acquisitions

· Vertically integrated approach reduces frictional costs and improves member value

· Actionable data insights

· Powerful technology infrastructure

Trupanion's Strategy Going Forward is:

· Increase the number of referring veterinary practices

· Increase the number of referrals from active veterinary practices

· Increase the number of third party referrals from members

· Improve online lead generation and conversion

· Explore other member acquisition channels

· Expand international

· Pursue other revenue opportunities

One of the quickest venues for growth is name recognition at veterinary offices. Trupanion has only been around since 2008 in the United States and faces competition from a number of firms, including VPI, which was founded by veterinarians and claims to be recommended by four out of five vet offices.

Trupanion has 62 what it calls "territory partners". These reps visit veterinarian offices to try and get policies promoted to customers. Each partner has a territory that averages 250 practices. This is a great practice by Trupanion to use reps to cover the entire nation in an attempt to get their brand out and get better recommendation rates from offices.

Trupanion's site doesn't offer quotes without giving an email address, but did list price factors as age, breed, gender, city living in, and whether a pet is spayed/neutered. Deductibles range from $0, $50, and $100.

Veterinary Pet Insurance, which owns, is the number one pet insurer in the United States. The company is owned by Nationwide Insurance, one of the largest national insurance brands. VPI lists plans ranging from $10 to $35 a month. VPI is the nation's oldest and largest pet insurer, dating back to 1980. In 1982, VPI offered its first plan for a dog by the name of Lassie, the famous television Collie. VPI had revenue of $239 million in 2013, according to Forbes. It is the only site to offer insurance for birds and exotic animals as well. Since 1980, VPI has insured more than one million different pets.

VPI's website offers a look at competitors, including Trupanion. The company lists a monthly premium of $88.36 for Trupanion versus $59.11 for VPI. These figures were based on numbers from February 2013, so they are quite outdated. The outdated figures do provide a look at competition for Trupanion that investors should consider:

· VPI: 60.7% market share, 31 years in the United States

· ASPCA: 9.6% market share

· 24 Petwatch: 9.4% market share, owned by Pet Watch, which trades publicly in Canada as PTZ and as a foreign stock in the United States (OTC:PTHLF)

· PetPlan: 4.6% market share, PetPlan UK is the world's oldest

· PetsBest: 4.5% market share

· Pet First: 4.3% market share

· AKC: 3.6% market share

· Embrace: 2.3% market share

· Trupanion: 0.5% market share

· PurinaCare: 0.4% market share

· Healthy Paws: no share listed

Since that list was created, one of the company's is no more. PurinaCare, which was owned by Nestle was sold in April of 2013 for $800,000 to PetHealth. PetHealth gained 12,000 policies, who at the time had over 200,000 active accounts.

PetPlan made Forbes list of most promising companies. The company had revenue of $53 million. PetPlan offers a retention rate of 90%. Since 2006, PetPlan has insured 120,000 different pets. A partnership with the Humane Society has helped boost the number of policies.

Here is a look at financial figures from Trupanion:






$19 million

$37 million

$56 million

$84 million

Net Loss


$3.9 million

$6.4 million

$8.2 million

Pets Insured





Lifetime Value of Pet





Pet Acquisition Cost





The first quarter, which ended March, was also included in the prospectus. In the first quarter, Trupanion saw revenue of $25.6 million. Trupanion is finalizing its second quarter financials, but included estimates in its prospectus. The company sees revenue coming in a range of $27.7 to $28.4 million, up from last year's $19.8 million. The operating loss for the second quarter will fall between $4.1 and $3.1 million. Total pets covered at the end of the second quarter was 194,617. Trupanion has an average monthly retention rate of 98.5%.

Trupanion has increased its market share since the VPI list gave it a mere 0.5% slice of the growing pet insurance market. The company still trails VPI, which pulled in $239 million in 2013. Trupanion has a huge opportunity in front of it and offers different coverage than its competitors with its motto of "one simple plan, 90% coverage, no payout limits". The company is seeing stronger subscriber rates and higher monthly rates per pet, both positive numbers for investors.

VPI has had a dominant position in the market for some time, with the help of veterinarian offices. As Trupanion expands its reach of territory managers, it will be able to cut into the monopoly VPI once had. Expect Trupanion's market share to increase in the pet insurance field, at the expense of VPI and other small competitors.

According to a survey, 91% of pet owners consider their pets as family members. More than 60% of homes have at least one pet. Trupanion is capturing the growing trend of insuring pets as life expectancies increase. With less than 1% of pets insured in the nation, Trupanion has a huge opportunity in a growth market. Investors should get into this name if shares don't run-up too much.

I highly recommend investors try to get in on this deal at the initial range of $13 to $15. I would be a buyer of shares up to $17, which would give the company a valuation of $451 million. Pet insurance is a growing market represented by Trupanion, a growth stock for long term portfolios.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in TRUP over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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