The Case for being a Bull on $LMND
Curious on any thoughts from the Commonstock community on a company that I just love as a consumer - $LMND. I have done a nice amount of research on this company and curious where everyone else stands on it. I'll try to keep this short so won't go to in depth.
What do they do? - $LMND is an insurance company for renters, homeowners and pet owner (Property and Casualty insurance). They have a technology first approach to make buying insurance easier, more efficient, and better for the consumer.
Why I like them? - First thing, I LOVE them as a consumer. I am looking to buy a home in this crazy market. We will see if it happens. As part of that process, I was getting an idea on homeowner's insurance. Within 5 minutes of being on their website, I was hooked and as a 27 year old millennial, I immediately switched my current renter's policy to them. Why you ask? I got more coverage (increased coverage limits by 25%), it was half the price of my old policy (dropped from $20 to $10 per month) and it was easier than buying a new pair of shoes online. Their AI robot Maya walked me through the process and then quickly transferred me to a personalized assistant in no time. The coolest part was that the assistant loved her job indicating happy employees work there and I felt like she was my friend after the process. Also, did I mention they contacted the company with my old policy and cancelled everything on the back end, I did nothing! Also, the assistant explained to me, the company keeps 25% of premiums for its own expenses and uses the remaining 75% mostly to purchase reinsurance policies from other insurance companies. Anything left over goes to a "Giveback" program, through which I ("the policyholder") got to choose a charity that will receive donations from the insurer. Can you believe that?! Through me paying insurance, I am also donating a very small fraction to a charity of my choosing. Talk about connecting with your consumer and being socially responsible. I told all my friends and others had the same experience and changed their policy. So the experience was great, so I did a bit of a deeper dive. Here are some other facts that make me a $LMND bull:
1) Insurance is complicated, they make it SO EASY! Also cheaper! I like how they are focusing on the younger generation. It seems as if a strategy for them is to get young policyholders while they are young and renting and then people will just stick with them forever (a.k.a those people will get them as homeowners). I worked in the insurance biz for a few years and people are so loyal to their insurers, I don't understand why except the fact that it's complicated and scary for most, Lemonade fixes this.
2) Leadership is legit. Shai Wininger, President, started the Company and he also was much involved in the juggernaut $FVRR in the early stages. Daniel Schreiber, CEO, is not so bad himself. This company is founder-led.
3) Growth - They are growing fast! Revenue was 23M, 67M, 97M in '18, '19, and '20. Did I mention they have no debt and lots of cash sitting on their Balance Sheet (almost $600M)! They are well positioned in the future provided the cost of reinsurance doesn't become a problem.
What I don't like? Valuation. It's expensive sitting at a $8.3B market cap at the moment. The Company I work for is growing at a similar rate but we only have a $1B valuation. The stock has soared of late. It also relies on reinsurance to pay its claims. Reinsurance is cyclical and has many ups and downs and as the Company grows it might become harder to do this. Also, other competitors might start to find a way to make insurance easier and better through AI.
Any other reasons out there to be a bull or bear out there on this stock? For whatever reason, I just really like this company.
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I have a bit of a different take and have spoken to a few industry vets who know the entire space really well.
1) Technology: The "technology-focus" etc that the company claims sounds great, but they don't have any meaningful advantage. Their use of AI is pretty much table stakes, nothing special. If anything, they have a massive disadvantage when it comes to AI. The incumbent insurance companies have multiples of data that they feed into their algos vs. LMND. Will touch on this more in a bit.
2) Insurance Industry: Aside from the best of the best insurance co's (PGR, etc.), the only way these companies have made money for a long time is simply through the float / long treasuries. Even PGR, ex float the margins are de minimis.
3) Business Model: Capping flow through of the top line at 25% through reinsurance business makes future profitability nearly impossible. And, if they were technology focused and had such a great tech advantage, why would they decide to reinsure their entire business around the time of the IPO? Just connecting those dots isn't positive.
4) UI: This is their current advantage right now, IMO. It is a much easier / enjoyably user interface.
I'm just not sure how the company ever makes money