Metromile Warrants Surge 100% – What’s Happening Here?

Trade Metromile Shares Your Capital Is At Risk
Tim Worstall
Updated: 18 Apr 2022

Key points:

Metromile (NASDAQ: MILE) stock is, despite its very exciting history, a pretty boring stock now. This isn’t true of the Metromile Warrants (NASDAQ: MILEW) which are up 100% since Thursday morning. Quite why this should be so is difficult to determine.

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Metromile has what looks like an interesting approach to business. Instead of insuring auto drivers per month or per year, why not insure per mile driven? The consumer could possibly benefit from this after all. Further, using some of that spiffy AI that’s newly possible, it might well be possible to cut prices more finely so as to improve margins.

It’s also possible that there’s a certain end-run around some state insurance regulation here. For those who don’t know, insurance is regulated by each state, separately. The terms and prices of auto insurance contracts can be very odd indeed as a result in certain places. By entirely changing the charging basis – from time to mileage – it might be possible to disrupt those controls.

Metromile came to market in a SPAC deal (with INSU Acquisition II) and it’s been a disaster since. The Metromile stock price is down to a $ and change from a peak of $12.

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It’s also true that Metromile is in the process of being taken over in an all-share deal with Lemonade (NYSE: LMND). The argument there is that they’re both trying to do the same thing and so it’s better to do it together than apart. Both using AI to reprice auto insurance so as to gain market share that is.

There’s also a corollary to that state control of the insurance business. It’s necessary to set up separately in each state in order to do business there. So, a combination – or even buying market share without the state set up costs – can be a winning strategy.

The thing is though that all stock takeover is already agreed – a 95% or so vote in favour in fact. So, the Metromile stock price is pretty much tracking the Lemonade one. Neither is moving all that much. There’s a bit of excitement in insurance circles as AllState (NYSE: ALL) says that it might raise prices but still.

So there’s no obvious reason that the Metromile warrants – a usual part of the SPAC process – should double in value. After all, their exercise price looks to be $11.50, so we’d rather expect them to convert into – if there’s to be any conversion at all rather than expiry worthless – some very limited amount of Lemonade stock.

Given that they have doubled it’s a very risky trade to take part in – unless it’s possible to work out why they have doubled. It’s possible that Metromile and or Lemonade have decided to vary the exercise terms. Or the conversion terms are better than thought. Or, of course, there’s a little ramp or pump and dump being played over the long weekend in something without much liquidity.

Finding out which of these is happening is essential to knowing which side of the trade to take now.

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