Stock Market Analysis

Why Is Lemonade Stock Falling?

The insurance disrupter reported strong results on Monday, but a disappointing outlook for 2021 sent Lemonade’s shares tumbling yesterday. 

Lemonade (NYSE: LMND) shares declined over 16% yesterday following the mobile insurance provider’s earnings release. The report actually beat Wall Street’s estimates but the sell-off can be attributed to a weaker outlook for the coming quarter and revenue results. 

Lemonade’s fourth-quarter earnings

Despite beating expectations, Lemonade’s revenue actually fell to $20.5 million from $23.5 million in the year-ago period. The company reported a loss of $33.9 million, or $0.60 a share, compared with a loss of $32.7 million, or $2.90 a share, in the year-ago period. The Street had forecast a loss of $0.64 per share on revenue of $19.2 million, while Lemonade had expected revenue between $18 million to $19 million. 

Investors were mostly disappointed with Lemonade’s 2021 forecast of $22.5 million in revenue for Q4, and up to $117 million for 2021. 

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

  • Active insurance policies increased 87% year-over-year (YoY) to $213 million. 
  • The company ended 2020 with over one million customers, reached after just four years in business.
  • The average premium per customer grew to $213, up 20% YoY. 
  • For the full year, Lemonade’s loss ratio fell to 71% from 79% in 2019, meaning the business is becoming more profitable.

In a letter to its shareholders, Lemonade explained how far the company has come with its product offerings since its market debut in July 2020, stating:

“We offer three very different types of insurance (property & casualty, pet health, term life) and have more in the works”, adding; “while Lemonade was available in 27 states at the time of our IPO, we now offer at least one of our products in all 50 of the United States.”

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. However, its forecast lacked positive growth, which shareholders latched on to, causing the stock to plunge on Tuesday. 

Long-term investors should remember that this company has the potential to capture a sizable chunk of the global $5 trillion insurance market. However, 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 60% 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. 

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Nicole Byrne
Nicole Byrne
Nicole is a writer here at MyWallSt. Her favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.