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Trade US Equities | Love Capital Markets | 27 years old | Husband | Sports Enthusiast | CPA | Passionate about Personal Finance | Work at Classy.org trying to mobilize and empower the world for good
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.
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
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Bitcoin/Litecoin - Learning Thread
I need some help. Looking for some good conversation on this topic. I understand the hype around Bitcoin and it’s recent run. I also see the value add in a decentralized currency, but I am having a hard time with one question: WHY BITCOIN?

As an outside investor, I am really excited about the future of crypto and it’s use for payments (ex. PayPal’s recent announcement to use crypto as a payment for its platform in future years. Game changer considering they have 28M merchants). I also have seen a lot of Ethereum and Bitcoin being purchased here so I know we have some long term investors (or short term) that are bullish on this platform. For this discussion, I have looked at the following: Bitcoin vs. Litecoin (it’s baby bro) although I don’t care, you could insert any cryptocurrency for my question, WHY BITCOIN?

Here are some facts when I look at Bitcoin vs. Litecoin:

  • QUANTITY - Litecoin can produce a greater number of coins than Bitcoin. A total of 84M compared to Bitcoin’s 21M can be mined. I think of this of like how much can the Fed print. In this instance, there is a cap for both. Once you reach capacity, it’s done. Although I understand that you can slice and dice those 21M BTC into as many .000001 BTC as you want. So does this really matter let’s say if you wanted to buy a cool watch on PayPal in the future with .0000001 BTC versus .01 LTC, probably not. But as a consumer or user of the currency, the less 0’s the better in my opinion.
  • SPEED - Although technically transactions occur instantaneously on both the Bitcoin and Litecoin networks, time is required for those transactions to be confirmed by other network participants. Litecoin is said to be 4x faster than Bitcoin which many prefer. Seems like a win for Litecoin but again here to learn.
  • ALGORITHMS - Bitcoin and Litecoin use fundamentally different cryptographic algorithms: Bitcoin uses the longstanding SHA-256 algorithm, and Litecoin uses a newer algorithm called Scrypt. So what is this, cause to be honest with you, I didn’t know when I first looked into this. SHA-256 is generally considered to be a more complex algorithm than Scrypt, while at the same time allowing a greater degree of parallel processing (so I interpret this as Bitcoin being more secure, but I could be wrong) The most common method for Bitcoin mining consists of the use of Application-Specific Integrated Circuits (ASICs). These are hardware systems that, unlike the simple CPUs and GPUs which came before them, can be tailor-made for mining Bitcoins. The practical consequence of this has been that Bitcoin mining has become increasingly out-of-reach for the everyday user unless that individual joins a mining pool (seems tough to be a part of the club if you ask me). Scrypt, by contrast, was designed to be less susceptible to the kinds of custom hardware solutions employed in ASIC-based mining. This has led many commentators to view Scrypt-based cryptocurrencies such as Litecoin as being more accessible for users who also wish to participate in the network as miners (does this mean it’s more decentralized?!) While some companies have brought Scrypt ASICs to the market, Litecoin’s vision of more easily accessible mining is still a reality, as a good portion of Litecoin mining is still done via miners' CPUs or GPU’s. Curious to learn more about this area.

  • MARKET CAP - An added PLUS: it’s way CHEAPER! As of November 2020, Bitcoin's market cap is just under $200 billion, while Litecoin's is under $3 billion. Seems to me if Litecoin can catch some traction, this is a really cheap alternative to Bitcoin to be used as a currency.

Concluding thoughts: So I get that Bitcoin being first to the market or at the very least, the most popular, gives them a competitive advantage. I mean the main reason why Bitcoin is what it is today is because we have determined that it should and does have an asset value (similar to gold/silver). It also seems that using SHA-256 algorithm may make it more secure which of course I think the consumer would want (at least for more important transactions; for your watch above in my example, I don’t think people would care).

But using Litecoin appears more decentralized (more people can verify the transaction), you don’t have to be in a mining pool to decode the transactions and it also seems fairly secure as well. So what I don’t understand, is that fundamentally speaking Litecoin (it’s baby bro) seems like maybe not better but a more efficient version of Bitcoin. High level, it also almost feels like Bitcoin is the Gold of crypto while Litecoin represents Silver which given valuations seems like there is an opportunity there in itself. LTC seems more user friendly, it’s faster, can be produced more so less splicing of the currency, and it seems merchant friendly (I.e. sellers that transact with the currency now or in the future may want transactions to be completed and officially happen 4x faster than older brother).

Looking to be educated here. Currently, the only MOAT I can give Bitcoin is that it was first and therefore is more widely accepted and it appears it has better security. But once people begin to adopt these currencies and once companies begin to adopt the currencies more widely, why would you choose Bitcoin over it’s baby bro (Litecoin)? I feel like for a small transaction such as buying a watch and many other consumer transactions in the future I discussed above, I would use a faster Litecoin. Thanks for the engagement and responses in advance. Looking forward to learning!
Wow, can't believe I missed this when you first posted it. This is a great memo.

Ok, so the way I'm thinking about it right now is that layers built on top of Bitcoin (like the Lightning network) will give it the transaction speed that is necessary for consumer transactions. We're not at a point yet where people are adopting crypto currencies for payments, but when we do, I think there will be a convergence around one. The reason the market will choose Bitcoin is because it has the most hash power behind it's base layer. It is the most secure, and the most battle tested. When it comes to money, that is crucial. I think the most secure money gets picked as the market winner, and then further protocols will be built on top of the base layer which expand it's functionality.

In computer science, the idea of 'encapsulation' is where each part of the tech stack has its own specific function. Instead of one protocol trying to be everything, it can be really good at just one thing. The best protocol at the most basic thing is the one that gets picked for other protocols to build on top of.

Would love to hear your thoughts on that.
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