Root’s third quarter results were met with a negative reaction from the market, despite the company delivering both revenue and earnings ahead of Wall Street expectations. Management attributed the quarter’s performance to rapid growth in both direct and partnership distribution channels, supported by the deployment of a new pricing algorithm and expansion into new states and marketing channels. CEO Alex Timm highlighted that these initiatives, along with advancements in pricing technology, drove a record number of policies in force and strong underwriting results. However, the drop in operating margin and rising competitive intensity were also emphasized as factors shaping the quarter’s outcome.
Is now the time to buy ROOT? Find out in our full research report (it’s free for active Edge members).
Root (ROOT) Q3 CY2025 Highlights:
- Revenue: $387.8 million vs analyst estimates of $371.2 million (26.9% year-on-year growth, 4.5% beat)
- Adjusted EPS: -$0.34 vs analyst estimates of -$0.47 (26.8% beat)
- Adjusted EBITDA: $33.7 million vs analyst estimates of $16.8 million (8.7% margin, significant beat)
- Operating Margin: 0.1%, down from 11.3% in the same quarter last year
- Market Capitalization: $1.33 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Root’s Q3 Earnings Call
- Andrew Andersen (Jefferies LLC) asked about the drivers of sequential growth in the direct channel. CEO Alex Timm pointed to pricing algorithm improvements and dynamic investment strategies, noting continued acceleration in both direct and partnership channels.
- Andrew Andersen (Jefferies LLC) questioned the uptick in severity and potential need for pricing changes. Timm said no significant rate changes are planned, describing the increase as within normal variation, particularly in property damage claims.
- Unknown Analyst (KBW) sought detail on Root’s penetration among independent agents and plans for expansion. Timm explained that Root has moved from less than 4% to less than 10% of agents, with a focus on product improvements and broader agent onboarding.
- Unknown Analyst (KBW) asked about the partnership channel’s share of earned premium. Matthew LaMalva, Head of Investor Relations, clarified that while the partnership share is flat as a percent of new writings, higher average policy sizes skew its contribution to earned premium upward relative to direct.
- Hristian Getsov (Wells Fargo) inquired about the decline in average premium per policy and flexibility on pricing. Timm cited targeted rate decreases in large markets like Florida but stated that healthy loss ratios support ongoing growth without broad rate reductions.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will closely track (1) Root’s ability to scale its partnership channel, particularly with independent agents, (2) the effectiveness of ongoing investments in pricing technology and marketing to sustain growth in a highly competitive landscape, and (3) the company’s management of seasonal loss ratio volatility. Updates on market expansion and evidence of continued underwriting discipline will also be key markers of execution.
Root currently trades at $85.90, down from $89 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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