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Buying a house and buying car insurance are two essential, painful, and high-expense parts of many American adults' lives. Despite the prominence of these markets, each is outdated, fragmented, and could hardly be described as consumer-friendly.
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Some statistics to demonstrate this:
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From the Metromile investor presentation (https://assets.metromile.com/wp-content/uploads/2020/11/24120556/Ext-Investor-Preso-vFinal.pdf):
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Scale
- $250B US personal auto insurance market
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Fragmentation
- No US carrier has more than a 20% share
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Inefficiency
- Traditional car insurance rates are unfair to the majority of drivers. Drivers are assigned to a "class" and charged the same rate as everyone in that class, even though there is a wide range of drivers within any particular class. In fact, 35% of drivers drive more than half the miles and charge more than half the losses.
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- Thus, 65% of drivers overpay for auto insurance
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From the Opendoor investor presentation (https://www.opendoor.com/w/wp-content/uploads/2020/09/Opendoor-overview-investor-presentation.pdf):
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Scale
- $1.6T/year real estate market
- 68% of Americans are homeowners
- 5 million homes are sold annually
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Fragmentation
- There are over 2 million realtors in the US
- 28% have another occupation
- 66% have less than 15 annual transactions
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Inefficiency
- 89% of buyers and sellers use an agent
- The process, on average, looks something like: find an agent, repair and prep the house, list the house for sale, wait several months, host open houses and showings, receive and negotiate an offer, buyer inspection, negotiate repairs, search for a new home, wait for close on your current home (during which 20% of deals fall through), miss out on your dream home, settle for an available home, and finally, move. A headache, right?
- At the same time, the various fees associated with selling and home and paying for an agent cost up to 12% of the final transaction
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The point is, these two industries just flat out suck. 65% of people get screwed on their car insurance. Nobody likes buying and selling a home, and doing so is such an awful, costly process that it overruns your life. Throughout the course of a person's life, the amount of time and money they waste trying to deal with outdated real estate and insurance systems has to just be astronomical.
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Now, Metromile and Opendoor are two companies looking to fix these problems.
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First, for car insurance: Metromile.
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- Metromile aims to offer car insurance that you pay for only when you use it.
- Each user pays a $29/month flat fee, plus roughly 5.4 cents per mile they drive. By installing a small device in users' vehicles, Metromile tracks the miles driven and charges per mile.
- According to their data, if you drive 2,500 miles, you save $961 per year. If you drive 6,000 miles, you save $741 per year, and if you drive 10,000 miles, you save $489 miles per year.
- Thus, the average customer saves 47% per year on their insurance.
- The company has a Net Promoter Score of 55, 14 points higher than the auto insurance industry average of 41, and their claims NPS is a whopping 75.
- Moreover, they have developed a loyal customer base. The average life expectancy of a new policy is 3.4 years, and that number jumps to 5.2 years once the customer stays for a year.
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On to real estate: Opendoor.
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- Opendoor is disrupting the traditional real estate industry by buying, fixing, and selling homes themselves.
- Anyone can apply to sell their home on Opendoor, who then makes an online cash offer within a few days, offers a flexible closing date and digital closing, and then offers thousands of homes on their website/app that buyers can view, visit, and buy.
- Opendoor charges a 7% flat fee, saving sellers money compared to a traditional listing.
- They are a market leader, selling 4.4x more homes than the next competitor, and claim to be 12x more efficient than a traditional agent.
- Opendoor has an NPS of 70, significantly higher than a traditional real estate agency.
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THE THESIS FOR INVESTMENT:
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- Metromile ($INAQ) has experienced a 76% annual average premium growth over the last four years. 45M drivers use Metromile today, and they expect that number to increase substantially over the next decade. Currently, Metromile only operates in 8 states. By 2021, they intend to operate in 21 states, and by 2022, they intend to operate in 49. Thus, Metromile doesn't have to dominate the market to be a winner. They don't even have to be the next Geico or State Farm. If the company can do the same thing they're doing in 8 states in an additional 41 over the next couple of years, that represents a massive avenue for growth. Any additional market share captured, which they have a legitimate chance of doing, is an added bonus.
- Opendoor ($IPOB), likewise, grew revenue from 2018 to 2019 at 159% Y/Y. In their first 6 markets (US cities), in which they hold a 3.2% market share, Opendoor had $2.7B in revenue in the first quarter of 2020. Today, they are in 21 markets, with a 2.0% market share and $5B in Q1 2020 revenue. If Opendoor can simply reach a 4% market share in 100 markets, that would give them $50B in quarterly revenue or roughly 10x from where they are today.
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Therefore, neither of these companies has to dominate the market to be a winner. By simply expanding to more states, which both intend to do, $IPOB and $INAQ can be huge winners, and both certainly have the potential to be market leaders. I currently hold a position in $IPOB and will be starting one in $INAQ soon.
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Would love to hear everyone's thoughts about these companies! Thanks for reading!
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