Categories Analysis, Finance

Lemonade (LMND): A successful IPO of 2020

The usage of artificial intelligence (AI) has accelerated rapidly in the fintech industry. Many insurance companies are using AI to compete with their competitors. These insurance companies use AI in back-office tasks, underwriting, customer support, fraud detection and claim processes. Let’s analyze one such insurtech company, Lemonade (NYSE: LMND), in this article.

IPO

The mobile-based insurance start-up, which was founded in 2015, priced its 11 million shares at $29 and raised $319 million last Thursday. At first, Lemonade had fixed its price range between $23 and $26 and then boosted that range to $26 to $28. On its debut day, Lemonade stock jumped about 140% and closed at $69.41. Due to the mounting worries of COVID-19, most of the IPOs were canceled or suffered a setback this year. But Lemonade’s IPO will remain one of the top successful IPOs in the US in 2020. As the market was closed on Friday for the US Independence Day, the positive momentum continued on Monday with LMND stock more than tripling its IPO price at one point of time.

Overview

Lemonade, which is backed by Softbank, uses behavioral economics, artificial intelligence, and chatbots to deliver renters and homeowners’ insurance policies and handle claims for its customers. Lemonade is currently licensed to conduct insurance business in 41 states of the US and now it operates in 28 of those states across the US.

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The company offers content and liability insurance in Germany and the Netherlands. The pan-European license that Lemonade holds allows it to sell its products in 31 countries across Europe. The company offers renters insurance starting at $5 per month, and homeowners insurance starting at $25 per month. Lemonade has 329 total employees as of March 31, 2020.

Lemonade (LMND) - customer trend

Customers

Approximately 70% of Lemonade’s current customers are under the age of 35. As of March 31, 2020, the company had 12,445 customers of condo insurance policies. 10% of these customers upgraded from a renters policy to a condo or homeowner policy.

Ownership

Japanese conglomerate Softbank owns 21.8% of Lemonade’s shares. Founders Daniel Schreiber, who is the CEO of Lemonade, and Shai Wininger, the COO, own 28.3% and 29% of the company’s shares, respectively.

Competition

Lemonade faces significant competition from traditional insurance companies such as Allstate, Farmers, Liberty Mutual, State Farm, and Travelers. These competitors have an advantage of increased name recognition, higher financial ratings, greater resources, additional access to capital and they also provide insurance products like auto, health and life insurance. The company believes its digital-based business model will help it to combat with the rivals.

Lemonade (LMND) - revenue - net loss

Growing revenue

Lemonade’s revenue almost tripled year-over-year to $67.3 million for the year ended December 31, 2019. For the quarter ended March 31, 2020, revenue more than doubled annually to $26.2 million.

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Yet to be profitable

The New York-based company has not been profitable since its inception in 2015 and had an accumulated deficit of $198.3 million and $234.8 million as of December 31, 2019, and March 31, 2020, respectively. The company posted net loss of $108.5 million for the year ended December 31, 2019, and a net loss of $36.5 million for the three months ended March 31, 2020. Lemonade’s quarterly loss has been increasing quarter-over-quarter.

Final verdict

Lemonade’s growth in revenue and its customers has been good so far. But we do not know when the company will become profitable. This will be a major concern for long-term investors. So, it’s better not to get carried away by the current obsession. Long-term investors can wait for a few quarters to assess the company’s performance and then take a decision after that.

DISCLAIMER: This article does not necessarily imply the views of AlphaStreet, and contains opinions of the author alone.

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