Investors are captivated by hot IPOs because they are the first opportunity to invest in an exciting company. But you can make fantastic gains, even if you miss that attractive pop from the first day, if that company is built for long-term success. All three companies that I’m presenting today are challengers who are changing the way business is done in their respective industries. Lemonade (NYSE: LMND), Airbnb (NASDAQ: ABNB), and Affirm participation (NASDAQ: AFRM) have a lot to offer investors even after their initial public offerings and are worth watching.
Consumer-centric insurance technology
Although fintech (financial technology) has changed the way people do banking and shopping, insurance has been left out of the revolution. Enter Lemonade, who is trying to update insurance for the 21st century.
Lemonade offers insurance for owners, renters and pets in the United States and several other countries. It prides itself on “everything instant” and uses behavioral economics and artificial intelligence to offer policies and approve claims entirely online. Lemonade’s inbound chatbot asks the candidate questions to determine the exact price and gives a quote in seconds. About 30% of claims are answered by another bot in just three minutes and approved funds are instantly transferred to the claimant’s bank account. The company maintains a fixed rate of 25% of each policy and transfers the rest to a third-party reinsurer to deal with claims. Customers can donate the remaining money after complaints and payments to a charity of their choice.
Image source: Getty Images.
Lemonade has traditional insurers as competitors, but there is no other digitally focused home insurer, which puts it in a class apart. The transparent and customer-friendly approach to a normally unpleasant part of life is clearly having an impact on homeowners and tenants, as the company surpassed 1 million customers in December in just four years of operation.
Other notable signs of progress are the gross gain premium, which increased 104% in the third quarter of 2020, and the gross loss ratio, which decreased 8 percentage points over the previous year to 72%.
I am a big fan of Lemonade and I think it has a lot of value for investors, as it upsets the insurance industry and gains millions of customers. Even with an exaggerated valuation of 88 times sales at recent prices, Lemonade is an action that you should keep an eye on.
Revolutionizing travel
Airbnb revolutionized the travel industry by creating a market for home and room rentals and global experiences. The company’s debut in December was one of the hottest IPOs in 2020, and the price went up 45% in 2021.
Image source: Airbnb.
Not everything is rosy. Gross reserve volume (GBV) decreased 39% in the first nine months of 2020 and revenue decreased 32% as the pandemic crushed the travel industry. Airbnb is still operating at a loss, and steep – $ 700 million in the first nine months of 2021.
But that loss is a $ 375 million improvement over the previous year. And while the company expects more problems in the short term due to COVID-19, management sees a total addressable $ 3.4 trillion market – and a path to growth, investing in its brand and connections to unlock more hosting and engage your market, and innovating through your website. We can see the strength of the Airbnb model in its pre-pandemic growth: GBV increased 29% in 2019, while revenue increased 32%.
As vaccines are launched, the economy is gearing up for a resurgence in travel, and Airbnb will be one of the recipients of pent-up demand. The company’s operating model, as a vacation rental market, is light, making it agile and easily scalable. It is the future of travel, creating experiences in places that were previously inaccessible.
In the meantime, the shares are being traded at 32 times the sales, which is quite high, but below the other shares on this list. Even if investors are discouraged by the valuation, there is a lot of potential here, and you should definitely keep it on your watch list.
Creative ways to make expensive purchases affordable
Affirm was one of the first IPOs of 2021, and is already 18% above the opening price on the first trading day.
Affirm sees itself as an alternative to credit cards and offers purchase options now and later payment, so that customers can pay for large purchases more easily. The company sees this as an advantage for customers, who can get what they need without hidden interest or late fees, and merchants, who make more sales. Affirm receives money from both sides as well, in the form of payment processing fees for merchants and interest payments from customers.
Image source: Affirm Holdings.
The company’s services are available through 6,500 business partners, including Walmart and Best buy. Revenue increased 93% over the previous year in 2020, and the gross volume of goods grew 77%.
Affirm’s biggest sales partner is Peloton Interactive, which represents about 30% of total sales. But it recently struck a deal with Shopify to be your exclusive partner for services buy now, pay later, which must be another big increase in revenue.
It has not yet made a profit, but as the number of partners increases and new satisfied customers gain, it predicts a cyclical effect in which both increase, leading to higher revenues and profits. I wouldn’t recommend buying here yet, but it’s one to keep on your watch list.