With it being a fairly slow news day, we thought this would be a good opportunity to provide some color on a name you may not be familiar with but it rose about 100% in 2017: Trupanion (TRUP). It's a Seattle-based provider of medical insurance plans for cats and dogs across the US and Canada.
Here's how it works: TRUP offers a simple, fair and comprehensive medical plan that pays 90% of veterinary costs for injury and illness claims, has no payout limits, has few exclusions and can be used at any vet practice the owner chooses. Generally, the only costs not covered are pre-existing conditions, routine or preventative care, exams, taxes etc. Prices vary depending on each pet's unique characteristics.
TRUP generates revenue primarily from subscription fees for its medical plan, which automatically renews on a monthly basis. Its growing and loyal member base provides TRUP with highly predictable and recurring revenue. Its target market is large and underpenetrated. Pets enrolled have grown from 31K pets at the start of 2010 to more than 404K at the end of Q3.
TRUP says pet owners are often surprised by the cost of veterinary care and can be financially unprepared if their beloved pets become injured or ill. And vet costs have been going up due to increasingly advanced veterinary care. TRUP says its members are very loyal, as evidenced by its 98.5% average monthly retention rate since 2010.
TRUP is good for vets as well as they usually pay invoices within minutes. Also, TRUP members tend to visit vets more frequently, which can generate significantly more annual revenue for veterinarians. The result is a client base that is more engaged, spends more money on care and has healthier cats and dogs.
In sum, the stock had a very nice run in 2017 as its pet insurance product is really catching on with pet owners. The key for TRUP to be successful has always been to achieve large scale. That allows it to reduce its risk profile in terms of payouts as it covers more and more pets. For the nine months ended September 30, revenue came in at $176.1 mln, up 29% YoY. So it's getting quite large. Americans love their pets and see this as a way to avoid a huge vet bill if their pet gets sick.