Digital auto insurance company Root (NASDAQ: ROOT) missed Wall Street’s revenue expectations in Q2 CY2026 as sales only rose 1.6% year on year to $389.2 million. Its GAAP profit of $1.49 per share was 66% above analysts’ consensus estimates.

Is now the time to buy Root? Find out by accessing our full research report, it’s free.

Company Overview

Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ: ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Revenue Growth

Insurance companies earn revenue from three primary sources: 1) The core insurance business itself, often called underwriting and represented in the income statement as premiums 2) Income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities 3) Fees from various sources such as policy administration, annuities, or other value-added services. Luckily, Root’s revenue grew at an incredible 43.3% compounded annual growth rate over the last five years. Its growth beat the average insurance company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Root’s annualized revenue growth of 35.5% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers because they were impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Root’s revenue grew by 1.6% year on year to $389.2 million, falling short of Wall Street’s estimates.

Net premiums earned made up 91.6% of the company’s total revenue during the last five years, meaning Root lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Net premiums earned command greater market attention due to their reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

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Net Premiums Earned

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

Root’s net premiums earned has grown at a 44.7% annualized rate over the last five years, much better than the broader insurance industry and faster than its total revenue.

When analyzing Root’s net premiums earned over the last two years, we can see that growth decelerated to 37.6% annually. Since two-year net premiums earned grew faster than total revenue over this period, it’s implied that other line items such as investment income grew at a slower rate. While these additional streams certainly contribute to the bottom line, their impact can vary. Some firms have shown greater success and long-term consistency in investing their float compared to peers. However, sharp fluctuations in the fixed income and equity markets can significantly affect short-term performance.

Root produced $363.5 million of net premiums earned in Q2, up 3% year on year. But this wasn’t enough juice to meet Wall Street Consensus estimates.

Key Takeaways from Root’s Q2 Results

It was good to see Root beat analysts’ EPS expectations this quarter. On the other hand, its net premiums earned missed and its revenue fell short of Wall Street’s estimates. Overall, this print was mixed. Investors were likely hoping for more, and shares traded down 11.1% to $53.59 immediately after reporting.

Big picture, is Root a buy here and now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here (it’s free).