With growing client base, Lemonade is taking insurance sector into digital era

Lemonade Inc. (NYSE: LMND) has been steadily expanding its customer base, supported by a business model that set a new paradigm in the insurance industry. What needs to be seen is how quickly would the insurance startup turn profitable and create shareholder value.

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Read management/analysts’ comments on Lemonade’s Q4 report

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The New York-based mobile insurance app, which has a significant presence in Europe, made Wall Street debut at a time when the pandemic was tightening its grip on the business world. But the company navigated through the crisis effectively and gained a solid footing in the market.

Buy LMND?

After a blockbuster IPO nearly a year ago, the company’s stock made strong gains and peaked early this year. If experts’ outlook is any indication, the stock is on its way to cross the $100-mark, recovering from the recent pull-back. The positive view, together with the recent dip in valuation, offers an investment opportunity that is worth trying. Currently, the consensus rating on the stock is moderate buy. From a long-term perspective, it could be a great bet.

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Metlife Q3 2020 Earnings Call Transcript

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Lemonade is adding new customers pretty quickly. It has the potential to set new standards for the highly competitive insurance industry, and that brightens the company’s growth prospects. It has an impressive pipeline and is using advanced technologies like AI to expand market share, especially in Europe. But the $6-billion market cap looks too big for a company of Lemonade’s size.

Customers Up 56%

In the fourth quarter, gross earned premium surged 92% year-over-year to $50 million. There was a 56% growth in the number of customers to about 1 million. The company generated total revenues of $21 million and incurred a loss of $0.60 per share, compared to a loss of $2.90 per share last year. It is estimated that the impact of extreme weather that affected several states recently has resulted in an increase in claims in the current quarter. However, the long-term outlook for the company’s finances remains positive.

From Lemonade’s Q4 2020 earnings conference call:

“…Our customer journey has progressed from a relatively linear roadmap where customers join young renters and graduate to become homeowners to a far more multi-dimensional map with an array of on-ramps and intersections. This is great news for both customer acquisition costs and the lifetime value of our customers. It’s a level of symbiosis that we theorized about, that we aspired to and it’s heartening to see it play out even better in practice than the theory had projected. All these learnings have emboldened us to continue down this road, indeed, to double down on it.”

Stock Performance

Lemonade’s shares have dropped more than 50% since hitting an all-time high a few weeks ago. The stock traded lower throughout Monday’s regular session and languished at a three-month low. Interestingly, it has maintained the downtrend even after the strong fourth-quarter results.