A for profit public benefit insurance provider that's sweet and sour so I guess aptly named: Lemonade.
12/2/2021
Lemonade, Inc. (NYSE:LMND)
(Hook) "A Full-stack insurance carrier" that profits from a flat fee and donates any remaining money to charity and is both listed on the NYSE and is a public benefit corporation under Delaware law. So it's probably never going to be a real banger for profit, but it could eventually eat the rest of the market - at least for millennials.
Price at write-up $47.36 (-28.6%, -48.36%, -25.59% day)
Indexes (30, 180, 365 day)
VIX: 27.95 (16.03, 17.48, 21.17)
TED: 0.12 (0.09, 0.11, 0.15)
S&P500: 4,577.10 (-0.79%, 8.93%, 24.97%)
Fed: 0.08 (0.08, 0.08, 0.09)
Reported Inflation rate: 4.8% (2020 1.2%)
Actual inflation rate: 6.2% (2020 1.4%)
Valuation Ratios
Target: Maybe zero. Maybe $85.
Lemonade offers lower stockholder and corporate rewards than your typical insurance providers such as Allstate (NYSE: ALL), ARGO, GBLI and is presumably attempting to conquer the market with lower overhead and a social mission. What's more, its bold claim that it can use Big Data, AI, and behavioral economics, to streamline its business and consumer experience while offloading excess claims to its reinsurers and excess premium to selected nonprofits. After its IPO those buzzwords were very profitable for early shareholders.
LMND's 2021 loss ratio is 88% up from 71% last year and above the board's stated goal of remaining below 75% (Allstate's is 71%, and presumably this is to the shareholder's benefit).
Part of this recent increase in losses is due to early-year winter storms in the south but wasn't helped by the addition of its new product - Car insurance. LMND has expedited this rollout by acquiring Metromile which is already a licensed car insurer in 49 states (despite only writing policies in eight). Metromile has been growing too in 2020 it had $36m in losses and $171m this year.
My Thoughts
So here's the situation:
If Lemonade does well with its incentive alignment and wins more customers it's clear the customer is going to win.
If using big data and streamlining the consumer-facing business is a winning strategy other insurers will mimic the strategy being held back only by their own inertia, which will probably be significant.
Lemonade, Inc. (NYSE:LMND)
(Hook) "A Full-stack insurance carrier" that profits from a flat fee and donates any remaining money to charity and is both listed on the NYSE and is a public benefit corporation under Delaware law. So it's probably never going to be a real banger for profit, but it could eventually eat the rest of the market - at least for millennials.
Price at write-up $47.36 (-28.6%, -48.36%, -25.59% day)
Indexes (30, 180, 365 day)
VIX: 27.95 (16.03, 17.48, 21.17)
TED: 0.12 (0.09, 0.11, 0.15)
S&P500: 4,577.10 (-0.79%, 8.93%, 24.97%)
Fed: 0.08 (0.08, 0.08, 0.09)
Reported Inflation rate: 4.8% (2020 1.2%)
Actual inflation rate: 6.2% (2020 1.4%)
Valuation Ratios
| Price/Earnings (TTM) | Neg |
| Price/Sales (TTM) | 25.73x |
| Earnings per share | -3.39 |
| Price/Book (MRQ) | 2.65x |
| Price/Cash Flow (TTM) | Neg (excluding share sales) |
| Held by institutions | 36.38% |
| Short interest | 34.35% |
| Dividend | None |
| MarketCap | $2.9B |
| Beta | - |
Target: Maybe zero. Maybe $85.
Lemonade offers lower stockholder and corporate rewards than your typical insurance providers such as Allstate (NYSE: ALL), ARGO, GBLI and is presumably attempting to conquer the market with lower overhead and a social mission. What's more, its bold claim that it can use Big Data, AI, and behavioral economics, to streamline its business and consumer experience while offloading excess claims to its reinsurers and excess premium to selected nonprofits. After its IPO those buzzwords were very profitable for early shareholders.
LMND's 2021 loss ratio is 88% up from 71% last year and above the board's stated goal of remaining below 75% (Allstate's is 71%, and presumably this is to the shareholder's benefit).
Part of this recent increase in losses is due to early-year winter storms in the south but wasn't helped by the addition of its new product - Car insurance. LMND has expedited this rollout by acquiring Metromile which is already a licensed car insurer in 49 states (despite only writing policies in eight). Metromile has been growing too in 2020 it had $36m in losses and $171m this year.
My Thoughts
So here's the situation:
If Lemonade does well with its incentive alignment and wins more customers it's clear the customer is going to win.
If using big data and streamlining the consumer-facing business is a winning strategy other insurers will mimic the strategy being held back only by their own inertia, which will probably be significant.
BUT LMND is going to lose a lot of money getting there and that money is probably going to come from shareholders. Reading between the lines I'm pretty sure Lemonade won't do the stock buybacks required to return that shareholder value, and with a fixed profit margin, shareholders won't ever get outsized returns compared to the alternatives unless the fixed margin is higher than the industry average. Re-insurance will be key.
Risks
Lemonade keeps spending large amounts of money to expand it's business and likely won't compensate shareholders for the LARGE amounts of stock it's issuing to stay in business.
Other insurers also start:
Lemonade keeps spending large amounts of money to expand it's business and likely won't compensate shareholders for the LARGE amounts of stock it's issuing to stay in business.
Other insurers also start:
-using AI and cutting client point of contact costs
-using big data to maximize profit or lower policy costs (aren't they?)
Other insurers implement the same cost-cutting but return the profits to shareholders.
Conclusion
I'd rather it take on debt than issue shares since its mission statement is essentially that it won't return money to shareholders, but it will take their money and use it to finance their noble mission. Which is great, but why would I want to finance that? It's a bad use of my capital, but I'd like to thank the rest of you for falling on your swords.
Conclusion
I'd rather it take on debt than issue shares since its mission statement is essentially that it won't return money to shareholders, but it will take their money and use it to finance their noble mission. Which is great, but why would I want to finance that? It's a bad use of my capital, but I'd like to thank the rest of you for falling on your swords.
If sentiment turns around it might pop quite significantly again so if you knew that was going to happen beforehand it'd be a great trade. But it looks like a terrible investment to me, even if it's a good insurance company. This is the dip (down 70%) but will it flip?
Due Diligence - ALL, ARGO, GBLI
Due Diligence - ALL, ARGO, GBLI
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