Is Lemonade Stock A Buy?

Property and casualty insurer Lemonade, Inc. (NYSE:LMND) offers coverage for people who rent and own homes, as well as those who have cars and pets in the United States, Europe, and the U.K.

A few years ago, hype around the InsureTech firm was sky high on hopes that its artificial intelligence solutions would disrupt legacy insurers.

From highs near $150 per share in 2021, Lemonade has fallen sharply, now down almost 90% so what does the future hold for this former market favorite?

French Expansion Signals Seismic Shift

Earlier this year, the digital insurance company started offering insurance for home owners in France. The company did this together with BNP Paribas Cardif.

Lemonade’s branch in Europe reveals its global ambitions, and by starting to offer Homeowners insurance throughout France, it is demonstrating a clear ability to operate across language barriers too.

Last year, the Europe became the quickest-growing market for Lemonade, indicating a seismic change from being a single-offering insurer to a multi-product enterprise.

Lemonade is also expanding its business collaborations and broadened its financial partnership with General Catalyst, which is referred to as ‘Synthetic Agents.’ As per this arrangement, General Catalyst now funds a maximum of 80% of what Lemonade spends to attract new customers.

The agreement was first for $150 million over 18 months, starting in July 2023 and ending in December 2024. Now, it will go on until December 2025.  As part of the arrangement, Lemonade receives an extra $140 million to help its growth plan. 

How Is Lemonade Doing Financially?

Lemonade has been doing a stellar job at growing revenues which were up to $429 million last year, a year-over-year growth rate of 67.4%. That follows near 100% annual growth the year prior.

But for the first quarter of fiscal year 2024, the company ran into difficulties translating top line success to the bottom line. During the quarter that ended March 31, 2024, the company had a net loss of $47.30 million, and each share lost $0.67 on average. 

To put that into perspective, in each of the last 3 fiscal years, the company has reported a net income loss in excess of $200 million.

As of March 31, 2024, Lemonade’s total investments went down to $641.90 million from a previous level of $673.20 million. Simultaneously, total liabilities grew to $970 million, up from $924.40 million on December 31 of last year. And total expenses went up by 2.8% compared to last year, reaching $164.30 million.

Lemonade Writing Nearly $1 Billion of Business

For the fiscal year’s second quarter, Lemonade predicts that its in-force premium will be from $839 million to $841 million, the gross earned premium will be about $197 million to $199 million, and it foresees revenue of approximately $118 million to $120 million.

Still, the company estimates a loss in adjusted EBITDA ranging from $49 million to $47 million. Moreover, management anticipates expenses related to stock-based compensation to be near $15 million and capital investments to be close to $3 million. 

For the full year, Lemonade predicts that in-force premiums will be about $940 million to $944 million, and anticipates gross earned premium might be from $818 million to $822 million. The company expects that the yearly revenues will be somewhere from $511 million to $515 million.

The EPS loss is forecast to be negative $2.51 per share, corresponding to a loss of around $155 million. Also, Lemonade is looking at around $62 million for expenses related to stock compensation, close to $10 million for capital spending, and predicts having an average of about 71 million shares across the year.

Are Losses Threatening Viability?

While Lemonade has undoubtedly been doing a stellar job growing revenues, free cash flows and profitability have been highly elusive. So much so in fact that cash burn has been an increasing worry for shareholders.

The balance sheet has seen a reduction from over half a billion dollars in 2020 to just half that in FY 2023. 

With the share price down so severely over the past few years, profitability nowhere on the horizon and analysts revising their estimates lower for earnings in upcoming quarters, what does the future hold?

Should Investors Consider Buying Lemonade Stock?

For the fiscal second quarter that finishes in June 2024, Wall Street is expecting Lemonade to announce a loss per share of $0.87 and revenue up by 16.1%, reaching $121.38 million.

For the third quarter ending September of 2024, analysts are speculating that there will be a loss per share of $0.83 and predicting an upsurge in sales by 18.1% to $135.25 million when measured against last year’s top line for the same period.

Looking ahead, for the financial year that finishes in December 2024, it is expected that there will be a loss per share of $2.95 and also a significant revenue increase of 20.1%. For December 2025, Lemonade is forecast to report a loss of $2.44 per share, and its revenue is estimated to rise by 29.3% to reach $666.96 million.

From Wall Street’s perspective, six analysts recommend waiting for a better time to invest in Lemonade stock while the other two analysts suggest selling it now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.