Lemonade reached a 140% gain in its first day of trading but is it sustainable?
Substantial bullish momentum is confirming its appeal as the most attractive insurtech company on the market. But not all traders are convinced with the bright start.
This article reviews the strengths of the firm but also reviews threats to the firm’s strategies.
Lemonade is a tech company, effectively playing among the trending “solving customer problems” companies. It also topped this year Post’s annual Insurtech 100.
The company with its headquarters in New-York, USA, was co-founded in 2015 by two IT startupers Daniel Schreiber, ex-president of Powermat and Shai Wininger, co-founder of Fiverr. Both have no actual experience in insurance, but maybe that was never needed.
Lemonade Insurance brands itself as the first AI-operated online platform, where you can buy renters’ or homeowners’ insurance in just a few minutes and receive claims in seconds.
It’s target audience are millennials who prefer to do all kinds of shopping online, value good design (company made a marketing-wise perfect website) and socially-responsible companies (Lemonade donates a part of premiums to charities, chosen by the customers).
The company also introduced a flat fee – 25% of premium, which is supposed to help Lemonade go through bad and good years. Like most of the insurance companies, Lemonade is reinsured by third parties, paying out 75% of its premiums, which substantially lowers the direct insurance risks.
In 2019 the lemonade’s Softbank-led valuation added $2.1 billion to reach $5.2 billion in June and currently stands at about $3.3 billion. LMND stock could be worth more in the future IF investors believe it’s disruptive business model. Since 2018 the company has significantly cut it’s gross loss ratio from 146% in 2018 to 72% in 2020.
Yet, the company’s main institutional holder SoftBank (about 22% share) can be a concern, casting shadows of WeWork, Uber, and other of its failures. Also the co-founders of the company hold another >50% percentage, which is not common for the start-up on the IPO stage.
The strongest company’s side is also its weakness: their marketing is very impressive. But that is all. At the moment, it’s hard to imagine Lemonade competing with traditional insurance giants like Allstate or Progressive, as well as strong competition (SelectQuote) whiting the same “new wave” insurance sector.
Despite the great start on the stock, traders prefer to see stability, not the miracle and wait for the company’s rise or fall. The USA house renters’ insurance market is in danger, as the country faces the worst economic and eviction crisis in history.
Moreover, if other other insurance will go for stronger online presence and AI (it’s hard to believe they will not in the post-COVID19 world and apply AI to polish their data), Lemonade could as well be a dead unicorn in just a few years. Or, as some raiders predict, Amazonned in case of progressive success.
Whatever the future holds, Lemonade will surely do one great thing even if not for themselves, raising up consumers’ expectations and giving AI and online purchase a way into the old and conservative market of insurance. Continue reading more on US & International stocks on our website.
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