Is Lemonade Inc. a Good Long-term Investment?
Today, I’ve got something different for you. We are taking a short break from tech and EV stocks to have a look at one really interesting stock that I’ve been following for a while. And, just like some of my favourite companies from the tech field, this is a business which managed to do really well, despite the problematic situations that the world has been going through recently.
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Hello everyone, and welcome back to Investing with Antoaneta! In today’s blog, I’ll tell you about Lemonade Inc. (ticker symbol LMND) – a rapidly growing NYC-based (NYC) insurance company, specialising in renter and home insurance policies. They’re a really promising business, which happens to tick all the checkboxes – great customer approval, dedicated management, fantastic financial stats, big market opportunity and very loyal employees.
Lemonade, Inc. (LMND) – Financial Stats
Lemonade was founded just five years ago, in 2015 by Shai Wininger and Daniel Schreiber. And, if Wininger’s name sounds familiar, then you’ve probably been looking into Fiverr recently, because, yes, he is currently sitting at their board as one of the company’s co-founders. Daniel Schreiber, on the other hand, is a passionate tech expert with experience in the legal field.
Lemonade’s management team believes that automation is the future, and they’ve incorporated this idea in the core of the company.
- Current Price: $80.35
- Today Change: +13.52 (20.23%)
- Market Cap: 3.782B
Lemonade stock went up in price by 20% in just the last day. Currently, their shares go for $80.35 apiece, while sitting at a market cap of 3.78 billion dollars.
What’s so great about Lemonade Inc.?
Speaking of automation here’s the first big thing that puts Lemonade Inc. ahead of their competitors – Maya. Now, Maya is an automated chatbot, and just like every other bot out there, she can greet customers and offer them basic information. But she can do much more than that! The advanced AI behind Maya can quickly and efficiently process user information and set up insurance policies on the fly. Signing up with Lemonade takes just a couple of minutes – thanks to Maya, there are no delays and no hassles.
Payment processing is also automated, this time, by an AI going by the name of Jim. Jim takes only three seconds to process all of your information and get you going.
With Lemonade, just about everything is automated. The AIs can handle marketing, finances, compliance policies, accounts, underwriting – you name it. And, just like the other advanced modern AIs, Lemonade’s digital team learns on the job. The more work they do, the better they get at it.
But, wait – there’s more!
On top of its fantastic AI solutions, Lemonade also uses an innovative method of handling the financial relationship between the insurer and the policyholder. They keep 25% of the premiums (which goes towards covering their expenses) while most of the rest is used for the purchase of reinsurance policies from other companies. The leftovers get put into their Giveback program, allowing policyholders to pick from a list of charities that get donations from the insurer.
So, since both the customers and the company want their reinsurance providers to cover as much of the claims as possible, they’re in a permanent win-win situation. Everyone is happier, and they get to rack up some good will points with policyholders thanks to the charity move.
What is Happening with Lemonade Inc. Right now?
Recently, Lemonade has been growing in popularity, and, considering everything that we’ve already looked at, they have great reasons. And, yes, this goes both for insurance shoppers and investors. Just for the third quarter of 2020, the total amount of in-force premium nearly doubled from year-earlier levels, marking a more than 430% rise in just two years. As a result, the net losses per dollar of gross premium are down by fifty percent.
But we also need to consider the circumstances during which that all of this is happening. The third quarter of 2020 was especially bad for companies in the insurance business, both in the property and casualty fields.
California also went through the most damaging wildfire season ever, and, as if that wasn’t enough, there were also a record number of tropical storms hitting the shores. The states most affected by all of these disasters are home to the majority of Lemonade’s key customers. But, despite all of that, Lemonade’s loss experience has improved. If that’s not impressive, then I don’t know what is!
A key piece of Lemonade’s strategy relies on offering young policyholders renter’s insurance. And while that’s a relatively low-margin business, it gets the job done – it helps young adults make their first property purchase. Naturally, if they are happy with the outcome, they are likely to consider better (and more expensive) policies later on.
At the end of the day, Lemonade’s strategy looks to be paying off – the company is enjoying over 300% growth in premiums from renters insurance policyholders who later convert to homeowners insurance.
Is Lemonade Inc. a risky investment?
You know me – I like to play it safe. After all, that’s exactly why I’m in the long-term investing game. And even though I’m not a big fan of risky investments, I’ll be honest with you here, and I’ll say that Lemonade is not entirely risk-free.
Of course, this is because Lemonade relies on reinsurance. And, just every other market, reinsurance also has to deal with volatility. Luckily, Lemonade has managed to mitigate the ups and downs very adequately, but it’s hardly a risk-free situation, especially as they continue growing.
On top of that, there is no way to guarantee that their AI will continue overshadowing every other customer service option in the field. There are a number of companies out there who specialise in customer service automation, and they might just come up with something better. So, even this advantage is not set in stone.
Finally, there’s also the question of trust. Lemonade’s entire business model relies on trust and transparency, which sounds excellent right now. Still, there is no telling if they would be able to fully mitigate potential hiccups like poor claim handling or breaches of trust down the road.
And so, we’ve reached the end of today’s blog. In closing, I’ll repeat what I stated in the beginning:
I believe that Lemonade has a really bright future. They’re a relatively young company that also manages to tick all the boxes; they’ve got:
- an innovative approach to customer support (great moat)
- dedicated and experienced management
- great customer approval
- really promising financial stats
- huge opportunities on the market
All of these factors turn them into an excellent long-term investing target, as long as the price is right, of course.
Recently, I’ve been getting a lot of questions on what I invest in and what my thought process is when I’m researching companies. And while I do try to respond to messages and sometimes even make full blogs to answer, it all takes time. Sometimes, by the time the blog comes out, the market has already changed, and you might end up missing on great opportunities. But that’s just the nature of comments – it takes me a long time to get through everything and address all the feedback.
To avoid this (and to be able to make longer videos since they don’t really do all that well on YouTube), I’ve created a private group where we can all chat, exchange information about new investment opportunities and share ideas. You can apply by following the link in the description.
If you’re looking for a solid investing platform, I use a bunch, but my most favourite right now is definitely Etoro. Etoro offers a ton of options, it’s really easy to use and has fantastic bonuses for new members. If you want to check it out, I’ll drop a link in the description for you.
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Thank you for being with me here today, and I’ll see you all next time!
Recommended for further reading:
- The Warren Buffett Way
- Shares Made Simple: A beginner’s guide to the stock market
- Smarter Investing: Simpler Decisions for Better Results
- Intelligent Investor: The Definitive Book on Value Investing
- The Five Rules Successful Stock Investing