Why Is Lemonade Stock Falling?

Lemonade reported mixed results for Q1, as the insurer’s strong client growth was dampened by a widened loss ratio after the Texas freeze.

Lemonade (NYSE: LMND) shares declined over 18% following the mobile insurance provider’s earnings release earlier this month. However, shares have recovered and are up more than 22% since the earnings beat despite the wider tech sell-off that has hurt growth and tech stocks. 

The report missed Wall Street’s estimates but the sell-off can be attributed to the company processing a year’s worth of claims after the Texas freeze which resulted in a widened loss ratio for Lemonade. 

Lemonade’s first-quarter earnings

The insurance disrupter’s revenue of $23.5 million, down 10% year-over-year (YoY), actually topped estimates of $1.62 million. In more positive news, the company’s in-force premium (IFP) metric (active accounts) jumped to $56 million, up 89% (YoY). Lemonade’s loss ratio increased 121% compared to 72% in Q1 2020. The insurance firm posted a loss per share of $0.81 on revenue of $23.5 million. 

Investors were mostly disappointed with Lemonade’s gross profit decreasing 59% to $1.9 million, which was due to the Texas freeze.

The earnings report did have several high points though, including; 

  • Total customers grew 50% year-over-year to over 1 million. 
  • The company held $1.2 billion in cash and cash equivalents on March 31, 2021.
  • The average premium per customer grew to $229, up 25% YoY. 
  • Non-renters insurance accounted for half of Lemonade’s business, up from a third of new business in Q1 2020.  
  • The company also gave some new details about its latest product, Lemonade Car. 

In a letter to its shareholders, Lemonade confirmed how far the company has come with its product offerings since its market debut in July 2020. Speaking about Lemonade Car, the company stated:

“This marks the third new product we have announced in less than a year, and the fourth major category of insurance we will offer our customers.”

Is Lemonade stock a buy?

Lemonade’s results were impressive overall and showed how far the company has come in terms of customer acquisition, growth of product offerings, and market expansion. For example, in December, Lemonade launched its renters, homeowners, and pet insurance in France — the company’s third European country. Now it’s moving into the motor insurance business and with the car insurance industry in the United States estimated to be a $300 billion market, investors should be excited about this product. 

Long-term investors should remember that this company has the potential to capture a sizable chunk of the global $5 trillion insurance market too as Lemonade expands internationally. 

The greatest thing about this company is how it differs from its rivals, by keeping 25% of the premium and giving the remainder after paying claims to charitable causes, this socially conscious and innovative company also uses A.I. and machine learning to keep costs low. As there is a growing demand for more conscious and socially responsible companies in the financial space, Lemonade has a great chance of capturing the younger generation’s attention with its fresh business model. 

Lemonade shares debuted 139% above their IPO pricing back in July, and are currently up almost 6% since then. This drop might prove a good buy-in opportunity for investors who want exposure to a technology company that is disrupting the insurance business.

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