The online insurance supplier Lemonade Inc. (NYSE: LMND) could be the hottest initial public offering (IPO) of 2020.
Incredibly, Lemonade’s share price grew from 55₵ on 1 July 2020 to $85.89 on 17 July 2020. However, Lemonade’s share price fell to $78.50 on 22 July 2020. That gave Lemonade a $4.71 billion market capitalization on 17 July 2020 and a $4.309 billion market cap on 22 July 2020.Thus, Mr. Market loves Lemonade, but what value does this stock have?
Unfortunately, Lemonade financial data is hard to find because the stock is brand new. However, there are a few financial numbers for Lemonade available.
How Much Money is Lemonade Making?
Lemonade (NYSE: LMND) reported total annual revenues of $67.500 million on 31 December 2019. Those annual revenues grew from $22.50 million on 31 December 2018, Yahoo Finance estimates.
However, Lemonade reported a pretax annual loss of -$107.9 million on 31 December 2019. That pretax annual loss rose from -$52.6 million on 31 December 2018.
Meanwhile, Lemonade reported a -$20.10 million negative free cash flow on 31 March 2020. Notably, Ycharts reports Lemonade had a quarterly profit margin of -139.3% on 31 March 2020.
In addition, Lemonade reported $312.3 million in cash and short-term investments and total assets worth $401.2 million on 31 March 2020. Given these numbers, I think Lemonade has some value, but makes no money.
What is Lemonade?
Lemonade Inc. (NYSE: LMND)comprises three companies; the Lemonade Insurance Company, the Lemonade Insurance Agency, and Lemonade Limited.
To elaborate the Lemonade Insurance Company issues policies and pays claims. The Lemonade Insurance Agency LLC is an online brokerage that sells and services the policies the Company issues. In contrast, Lemonade Limited provides technology and other resource to the other companies.
Currently, Lemonade issues renters, homeowners, condos, and pet health insurance in about 20 states. Lemonade claims the world’s biggest reinsurers back its’ policies. However, Lemonade does not identify those reinsurers at its website.
Lemonade’s Killer App
I think Lemonade could have a killer app that could make enormous amounts of money in the insurance business.
Lemonade’s killer app is an artificial intelligence (AI) that could process claims seamlessly and instantly online. Theoretically, Lemonade’s killer app could pay your claim at the touch of an app.
Hence, Lemonade could have a piece of digital technology other insurers could pay a fortune for. In addition, the killer app could make Lemonade more attractive to younger consumers who want instant digital service through their smart phones.
For example, Progressive Corp (NYSE: PGR) could use Lemonade’s app to pay some claim. However, I cannot see such an app could process auto insurance claims.
Can Lemonade Make Money in Pet Insurance?
Conversely, Lemonade could develop new insurance products and tools it can sell to other insurances. For instance, UnitedHealth Group (NYE: UNH) could apply the tools Lemonade develops for pet insurance to human health insurance.
In addition, Lemonade could develop a platform that other insurers could use to enter the pet insurance business. Moreover, I think pet insurance could be a growth business.
Lemonade entered the Pet Insurance on 15 July 2020. Hence, it is too early to see if pet insurance is profitable. Yet the potential market for pet insurance could be huge.
Will Americans Buy Pet Insurance?
For instance, the American Veterinary Medical Association estimates 48.255 million U.S. households owned dogs in 2018.
In addition, 32.896 million American households owned cats in 2018. Consequently, 38.4% of American homes have dogs and 25.4% of U.S. households own cats.
Moreover, Lemonade CEO Daniel Schreiber claims 70% of Lemonade policyholders own pets, TechCrunch reports. However, pet insurance is a tough sell. The New York Times estimates that just 2% of Americans own pet insurance. Thus, there’s no evidence Americans will buy pet insurance.
I think pet insurance could be a great testing ground for new digital insurance tools. Moreover, pet insurance could be a gateway that lures people in to buy other kinds of insurance. For instance, Lemonade could market health or life insurance to pet insurance policy owners.
Is Lemonade a Good Investment?
I think Lemonade is not a good investment because there is no evidence that its business can make money.
Instead of a value investment, Lemonade is an interesting idea for a company. Hence, Lemonade is a risky speculative investment, not a value stock.
Under those circumstances, I think people who cannot afford to lose money (90% of investors) need to avoid Lemonade. Lemonade (NYSE: LMND) stockis too dangerous for ordinary people. However, Lemonade’s insurance is worth investigating.