Why Is Lemonade Stock Falling After Hours Despite Monday’s Jump?

Despite an overall market decline on Monday, shares in Lemonade rose yesterday following its proposed public offering of common stock

Jan. 12, 2021

One of the most successful IPOs of 2020, Lemonade (NYSE: LMND) debuted on July 1 and by New Year’s Eve, it had risen close to 350%, including a 76.8% jump in December alone. It seems like January is in keeping with that momentum, as Lemonade’s stock is currently up just short of 50% so far in 2021, including a 14% rise yesterday. 

Why is Lemonade stock falling?

Yesterday’s gains may be soured this week after Lemonade revealed a proposed offer of 3 million shares of its common stock in an underwritten public offering, which has sent its stock price down more than 5% at the time of writing. 

What are the details of Lemonade’s second offering? 

Lemonade is offering 3 million new shares, and will also grant the underwriters 30-day options to purchase an additional 678,647 shares of common stock. Lemonade is planning on using the net proceeds from the public offering for general corporate purposes and will not receive any proceeds from the sale of shares from the stockholders. Goldman Sachs, Morgan Stanley, Allen & Company, and Barclays are serving as joint active bookrunners.

In a separate, non-diluted share offering, certain stockholders also plan to offer 1.5 million shares of the insurance provider’s common stock for sale.

What does a secondary offering mean to shareholders? 

In short, this isn’t’ exactly good news for an ordinary investor like you and I. Also known as a second offering, this actually dilutes the holding that current investors have through the creation of 3 million entirely new shares. Basically, existing shareholders will now find that their shares are worth less than they were before. 

Furthermore, with existing shareholders selling an additional 1.5 million in common stock, this can be seen as a sign a lot of insiders and early investors are cashing in on the high share price the company has now by selling some of their own stakes.

This is not totally uncommon, and the long-term thesis for Lemonade remains in place. It is a strong company that is disrupting the $5 trillion global insurance industry through its clever use of technology. If you want to read more about the bull and bear cases for Lemonade, you can check out our article here.

A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here