More than two years have gone by since digital insurance company Hippo Holdings Inc. (NYSE: HIPO) was floated on the New York Stock Exchange at a valuation of $5 billion, and today is has a market cap of just $222 million, representing value destruction of 96%. Despite the changes that the company has made during this period, including replacing its CEO and laying off 10% of its workers, the momentum in the share price has remained negative, and so far this year it has fallen 30%, at a time when the Nasdaq index rose 31% and the S&P 500 rose 15.9%. Hippo was founded by Israelis in the US, and in 2021 opened an innovation center in Israel. Among its investors are Israeli financial institutions such as Clal Insurance, Psagot, Poalim Capital Markets, and the FINTLV venture capital fund.
Last week, two shareholders in the company sent an open letter to the Hippo board calling on the directors to begin a strategic review of the company’s business.
The shareholders concerned are Bradley L. Radoff (who has acted in a similar way in other companies in the past) and Etude Capital. They say that, together, they hold close to 2.5% of Hippo, putting them among the ten largest shareholders in the company.
"Since becoming a publicly traded entity in early 2021, Hippo has generated abysmal financial results and operated in an unsustainable manner," their letter states. "Hippo is now a micro-cap stock that trades at a roughly 50% discount to book value. We believe the Board must immediately embrace its fiduciary duty to preserve shareholder value while navigating a highly regulated industry," it continues.
"We contend the only viable path forward is for the Board to immediately announce and run a strategic review process with the goal of preserving and maximizing value from the Company’s capital," the shareholders say. They demand improved financial disclosures: "The Company should cease giving meaningless non-GAAP guidance, like adjusted EBITDA, and focus on metrics that are critical to success as an insurer, such as book value and net income," they write.
In their view, if the right steps are taken, the share price could rise by $15-20, that is, by 60-125%. They seek the appointment of Jay Nichols Jr. as chairman of the board. "We believe Mr. Nichols’s successful experience leading insurance company strategic actions and exits will inure to the benefit of the Company and its shareholders," they state. The current chairman is co-founder Assaf Wand, who was removed as CEO last year and replaced by Richard McCathron.
Hippo deals in home and home contents insurance in the US. In the second quarter of this year it recorded revenue of $47.7 million, up from $28.7 million in the second quarter of 2022, but its operating loss also grew, from $55.8 million to $87.7 million, and it posted a net loss of $109 million.
In a letter to shareholders accompanying the second quarter financials, McCathron describes various challenges to which the company is exposed, but states, "For a nimble tech company like Hippo, these challenges and the resulting market dislocation are an opportunity. Our technology allows us to make the necessary changes faster than traditional insurers." He mentions extreme weather events that adversely affected the company’s quarterly results, but says that such events in the past led to opportunities.
Published by Globes, Israel business news - en.globes.co.il - on September 19, 2023.
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