Key Points
- Lemonade’s AI/ML platform can get you insurance coverage in 90 seconds and claims payouts in three minutes.
- Speed and efficiency from a seamless and frictionless onboarding process set it apart from traditional insurers.
- Lemonade raised fiscal Q2 2023 and full-year 2023 revenue guidance.
- LMND stock has a large 29.5% short interest.
- 5 stocks we like better than Lemonade
Online Insurance platform Lemonade Inc. NYSE: LMND stock rose 22.7% year-to-date (YTD). Its artificial intelligence (AI) and machine learning (ML) powered platform can get users into insurance plans in 90 seconds. While AI is getting mainstream attention, Lemonade was built on the foundation of AI similar to Upstart Holdings Inc. NASDAQ: UPST and its AI-powered automated lending platform.
Claims payouts can be received in three minutes. This speed and convenience, matched with a seamless and frictionless onboarding process, has been a key driver for customer signups as it disrupts an industry with high barriers to entry. The platform sells home, rental, auto, life and pet insurance.
Its simple user interface has bolstered the ease of signing up and using the platform to obtain insurance coverage literally in the blink of an eye. Lemonade is challenging the incumbent giants in the industry, including Progressive Co. (PGR), Cigna Co. NYSE: CI, The Allstate Co. NYSE: ALL and Berkshire Hathaway Inc. NYSE: BRK.A.
AI Powers Automation for Cost Savings
It uses AI to automate actuarial calculations to underwrite new policies in minutes. It also works as an agent using automation to bundle products and match customers with relevant insurance products from different providers. The company is still in hypergrowth mode despite inflation and macroeconomic uncertainties. In the coming 18 months, Lemonade will see considerable cost savings from the over 100 business processes that generative AI can automate and improve.
Inflation Deceleration Tailwinds
While inflation deceleration hurts producers riding high on fat margins, it's a tailwind for Lemonade. As inflation continues to drop, insurance costs come back down. Interest rate hikes increase the income it earns from investments. Better rates will help to continue its tepid 100% YoY annual growth rate. The company has been using generative AI to accelerate growth.
Its AI and ML algorithms improve with time and usage as the company continues to refine its methodologies. While still far from profitability, Lemonade is cutting out unprofitable and high-risk customers to improve its loss ratios, which have decreased for three consecutive quarters despite an unseasonably high number of catastrophic weather events.
Triple Digit Growth
On May 3, 2023, Lemonade released its fiscal first-quarter 2023 earnings report results for March 2023. The company reported an earnings-per-share (EPS) loss of ($0.95) beating consensus analyst estimates for a loss of ($1.08) by $0.13. Revenues grew 115% year-over-year (YoY) to $95.2 million, beating consensus analyst estimates of $88.2 million. In-force (active paying premiums) rose 56% YoY to $653.3 million.
Customer count rose 26% to 1,856,012, and customer premiums rose 26% YoY by $352. Adjusted EBITDA loss was ($57.4 million), a $6.6 million improvement over the year-ago period. The gross loss ratio was 87%, from 89% in Q4 2022 to 94% in Q3 2022. Annual dollar retention (ADR) achieved all-time highs up 87%.
Lemonade Co-Founder and Co-CEO Daniel Schreiber commented, “Looked at from another angle, we see that our gross earned premium and gross profit both grew by over 60% year-on-year even as our operating expense grew by only 4%. Whichever way you look at it, Q1's results suggest that the business is progressing in size and profitability, very much in line with what we'd hoped to see.”
Upside Guidance
Lemonade raised its Q2 2023 revenues guidance to $96 million to $98 million versus $90.92 million consensus analyst estimates. In-force premiums are expected between $665 million to $668 million on June 30, 2023. The company raised its fiscal full-year 2023 revenues to $392 million to $396 million versus $381.1 million consensus analyst estimates. Fore premium on December 31, 2023, is expected between $700 million to $750 million. Morgan Stanley initiated coverage with an Underweight rating and a $14 price target.
Lemonade analyst ratings and price targets are at MarketBeat.
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Weekly Cup and Handle
The weekly candlestick chart on LMND shows a cup and handle pattern attempt. The cup lip line started after peaking at $19.94 in February 2023. LMND sold off to a low of $10.29 by April 2023 before triggering a weekly market structure low (MSL) breakout through the $11.54 trigger at the beginning of May.
Shares retested the cup lip line after overshooting to $21.57 before they fell back under the lip line. The pullback bottomed at $16.52 as it attempted to form a handle on the next MSL trigger breakout through $18.08 back up through the $19.94 lip line. Pullback support levels are at $16.52, $15.45, $13.56 and $12.75.
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