The Squeeze of the Day

Today we bring you a condensed analysis from our friends at S-1 Club on the IPO of Lemonade, an online millennial-friendly insurance company.

• The highly anticipated IPO arrives at a time when e-commerce and digital platforms are hot in demand. Lemonade targets millennials with their bright magenta branding and tech-centric approach to selling insurance.
• The company is expected to go public on July 2 under the ticker $LMND.

THE EXPLANATION

The Sweet Side of Lemonade

Lemonade is offering a digital solution to a massive industry where the majority of insurance is still bought offline through agents. Holding only 0.1% of the homeowners’ and renters’ insurance market, Lemonade has lots of room to grow.

• In 2019, Americans spent a total of $1.3 trillion on property, casualty, and life insurance which made up 6.4% of the total US GDP.

Lemonade showed an impressive 450% annual increase in insurance premiums (close representation of revenue) from 2017 to 2020. They have been able to grow in a healthy and sustainable way without having to write riskier insurance policies to attract customers. Writing riskier policies is a common practice in the industry that could potentially lose insurance companies more money on claims.

Lemonade’s management team has a strong track record of building two successful publicly-traded companies, Fiverr ($FVRR) and Shutterstock ($SSTK) and attracting top talent.

• CEO, Daniel Schreiber commands an impressive “97%” employee approval rating on Glassdoor and is known all around as a strong leader and communicator.
• CTO, Shai Wininger co-founded Fiverr, a freelance marketplace that generated over $100 million in revenue in 2019.

The Sour Side of Lemonade

Like many other tech companies, Lemonade’s growth comes at the expense of profitability. A high amount of cash is funneled into sales & marketing, administration, and claims loss expenses. In order to become profitable, the company must grow its customer base, increase its revenue, and control its ballooning expenses.

Lemonade offers homeowners’ insurance, renters’ insurance… and well, that’s about it. To compete, Lemonade must offer different types of insurance to increase their revenue generated per customer.

• In early 2020, Lemonade announced the launch of their pet insurance with future plans to launch additional insurance products (i.e. travel, car, life, and other forms of insurance)

THE ACTION: Final Verdict ⚖

Continue reading the full article to find the final verdict on Lemonade from some of the best investors in the industry. Remember this is only a condensed version of the full S-1 Club analysis on the business, market opportunity, valuation, and risks on investing in Lemonade. This is not a recommendation and investors should fully understand the company before making a decision to invest.

See our issue covering the IPO market here.