What we think about Lemonade (LMND)
Lemonade in Three Words: Disruptive Insurtech leader
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Background
Lemonade is an insurance company that offers policies for homeowners, renters, cars, pets, and term life
It’s been a wild year for Lemonade, with shares falling 67% in 2022 and then rising back 28% in 2023.
The insurance technology leader closed on its acquisition of usage-based auto insurance company Metromile in late July 2022, paying just $145 million in stock for almost 100,000 new customers, over $110 million of additional in-force premium, more than $155 million of cash and cash equivalents, and a second insurance business with licenses in 49 states — not to mention data from roughly 500 million road trips. It financial results directly following that acquisition were rather skewed.
The good news was that it increased the total number of customers and bolstered the average premium per customer. But it also added 3 to 5 percentage points to Lemonade’s loss ratios, meaning it was more expensive to support those insurance policies. Management told investors that they believed their losses had peaked and should steadily improve going forward, adding that their existing capital on the balance sheet should be more than sufficient to carry Lemonade through to profitability.
In November 2023, Lemonade reported that it had just signed its 2 millionth customer. Its third-quarter results showed an 11 percentage point decrease in its loss ratio — from 95% last year to just 84% today (lending credibility to management’s previous statements). Total in-force premiums were up 19% to $719 million and the premium per customer rose 6% to $362.
Lemonade is still reporting negative EBITDA, but its reported losses are decreasing as it signs more policies. In its recent first quarter 2024 conference call, CEO Daniel Schreiber claimed the company would be cash-flow positive by the end of the year, empowered by how artificial intelligence “continues to deliver on the promise at the very core of Lemonade’s thesis.” In the first quarter of 2024, revenue grew 22% even though operating expenses grew only 2% (and also with a 11% decrease in headcount).
That seems to suggest that the juice was worth the squeeze, and that patient investors could be rewarded for Lemonade’s upcoming growth ambitions.
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