TRUPANION, INC. (TRUP) stock intrinsic value fair value estimate & owner earnings analysis

Trupanion provides medical insurance for cats and dogs in the United States, Canada and certain countries in Continental Europe, sold on a subscription basis. It reports two businesses. The subscription business is its own Trupanion-branded plans: $989.3 million of 2025 revenue, up 16%, with 1,096,173 enrolled pets (up 5%), average revenue of $80.79 per pet per month (up 11%) and average monthly retention of 98.34%. The "other business" ($450.0 million) is mostly policies Trupanion underwrites for an unaffiliated agency, Pets Best. Pets Best alone was 30% of 2025 revenue. That business earns much thinner margins, and the company says it expects the relationship to wind down and end as Pets Best moves to other insurers. About 83% of 2025 revenue came from members in the United States; the rest came from Canada and the European markets. What the owners have actually earned. We measure owner earnings as operating cash flow, minus short-term swings in working capital, minus stock-based pay (a real cost: $38.3 million in 2025), minus the capital spending needed to maintain the business. On that basis Trupanion roughly broke even from 2016 to 2020 and then lost $35 million to $47 million a year from 2021 to 2023. Veterinary costs rose faster than prices, and subscription cost of revenue climbed to 86% of subscription revenue in 2023. Repricing fixed that. The ratio fell to 83% in 2024 and 80% in 2025, slightly better than the 81-82% of 2017-2019. The subscription segment went from a $36.0 million operating loss in 2023 to a $22.5 million profit in 2025. Owner earnings were $3.1 million ($0.07 per share) in 2024 and $18.7 million ($0.43 per share) in 2025. Two accounting choices: the 2018 purchase of the Seattle headquarters building, a one-time real-estate purchase, is left out of maintenance spending; and the growth in premiums collected in advance and in claims reserves that a growing insurer builds up is excluded rather than counted as earnings. New-pet marketing ($85.4 million in 2025) is treated as a full cost, even though part of it pays for growth. Starting point. Only 2024 and 2025 describe today's repriced business, and the median of those two years is about $0.25 per share. The first half of 2026 supports a higher level. Operating income was $11.2 million against $0.8 million a year earlier, and interest expense fell from $6.9 million to $3.7 million after the loan was refinanced. We estimate owner earnings of roughly $16 million for the half-year. Owner earnings grew about sixfold in 2025. The base case assumes growth of about 74% in 2026, to $32.5 million, which is slower than last year and roughly in line with the first half. Base case ($22.44 per share). Subscription revenue grows 13% in 2026, slowing to 6% by 2035. That growth comes from pet counts rising at the 5% pace of the last two years before easing, and from prices that keep tracking veterinary costs (up 8% per pet in 2025). Subscription owner-earnings margin rises from about 2.7% to 4%, as 2025's price increases (11%, against 8% cost growth) keep working through the book of policies. The Pets Best business shrinks about 5% a year in revenue. That is in line with its recent pace: the number of pets in that business fell 12-13% a year in 2024 and 2025, partly offset by higher prices. Only half of the overhead now allocated to it goes away as it shrinks. Federal tax-loss carryforwards of $253.6 million shelter profits until the early 2030s. Owner earnings reach about $61 million by 2030 and $65 million by 2035. After 2035 they are held flat, with no further growth: 98% monthly retention and cost-linked pricing are what keep the book earning. About 60% of the value comes from the years after 2035. Bear case ($2.82). Vet-cost inflation outruns pricing again, as it did in 2021-2023, and wipes out subscription margins in 2027-2028 before they recover to 2025's level. Pets Best ends the relationship quickly (either party can terminate), and three-quarters of its overhead is left behind. Subscription growth slows to 5-9%. Refinancing the $100 million term loan, which matures in November 2028, costs more. Owner earnings turn negative for two years, recover only to about $22 million by 2035, and fade after that. Bull case ($36.29). The strong 2024-2025 growth rate (20% and 16%) holds longer, subscription margin reaches 5.5%, and three-quarters of the Pets Best overhead can be cut as that business runs off. Owner earnings pass $100 million by 2034. We did not subtract the company's debt ($101.8 million at year-end 2025). Owner earnings are measured after interest, so the debt is reflected through that and through the bear case. Value rests on subscription margins holding after a decade in which the business earned little or nothing for its owners. The wide gap between the bear and base cases reflects that thin record. What would prove this wrong: another period of claims costs rising faster than prices, or overhead continuing to grow as fast as subscription revenue, which it did in 2023-2025.