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Why Root Was a Flop on Friday

By Eric Volkman - Feb 26, 2021 at 4:55PM

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The company's Q4 performance fell short of expectations.

What happened

Shares of next-generation auto insurance company Root (ROOT -7.53%) crumpled by nearly 18% on Friday. The company released its fourth-quarter 2020 results following market close on Thursday, and they didn't make investors feel too secure.

So what

Despite a 37% year-over-year increase in direct written premiums, Root's total revenue fell by over 50% to $50.9 million from the year-ago quarter's tally of $106.5 million. The net loss deepened to $133 million, or $0.72 per share, from the year-ago deficit of $85 million.

Car nearing stop sign.

Image source: Getty Images.

While analyst projections for revenue weren't readily available, data compiled by The Wall Street Journal indicates they were collectively estimating only a $0.34-per-share loss on the bottom line.

The company proffered guidance for full-year 2021. Root believes its direct written premiums will climb to a range of $805 million to $855 million (2020's result: $617 million). Total revenue should be in the range of $270 million to $300 million ($347 million for 2020), and operating loss is forecast to be $505 million to $555 million. Net profit estimates were not provided.

Now what

We should bear in mind that Root is still a relatively young insurer, and its strong emphasis on telematics, rather than driver demographics, as a basis for its premiums has much potential. Customers find Root policies attractive, as evidenced by the rise in written premiums. Investors who believe in the company's approach shouldn't necessarily be discouraged by the disappointing quarter.

 

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