Lemonade (NYSE: LMND) made its debut as a public company on the New York Stock Exchange, and in its first two days of trading, it gained 187%. Lemonade had priced its IPO at $29 and planned to sell 11 million shares. Due to unexpected demand, the stock opened at $50 and hit a high of $96.51 on its second day.
This meant that the stock's valuation rose from $1.6 billion before its IPO to more than $6 billion. Over the next two days, the stock fell back to Earth and closed at $68.5 on its fourth day of trading giving it a valuation of $3.8 billion.
Company Profile
Lemonade is backed by SoftBank (OTC: SFTBY). The company targets first-time buyers of home and renter's insurance. Its goal is to make insurance more accessible and convenient by using artificial intelligence and data science. It's basically like Amazon Prime (NASDAQ: AMZN) meets Prudential (NYSE: PRU).
The company's website looks more like a company selling makeup rather than a staid product like insurance. It has an app through which anyone can get insurance in 90 seconds. You engage through a chatbot in which you enter your address, whether you are a home or renter, the app then asks some basic questions, and then spits out a quote with a customized insurance policy. It's also possible to customize the policy based on your needs.
The app can accept payment, and insurance coverage automatically starts. You can also file claims through the app. Rather than filling out a form and negotiating with an agent, you record a video explaining what happened. Then, the claim is instantly denied or approved.
Reviews on the app store are uniformly positive. Of course, it's debatable whether or not this makes it a good stock, but the company's innovation and application of technology to a product like insurance are very impressive. It also seems more consistent with how a younger person's ideal of insurance rather than the mind-numbing process of arguing and negotiation with multiple layers of customer service over the phone.
Valuation
Thus, Lemonade is a cross between a high-flying tech company and an insurance company. Currently, its valuation is more like a tech stock as it has a valuation of $3.76 billion but only $26 million in first-quarter revenue. The company is also aggressively spending to grow its market share - $130 million over the past year- and certainly, the IPO will give it deeper pockets.
On the bright side, the worldwide property and casualty insurance market is $5 trillion so Lemonade has a big opportunity in front of it. Insurance premium volume has grown from $9 million in 2017 to $116 million in 2019. It already has over 700,000 customers, and it's currently the highest-rated insurance carrier.
It's clear that in the short-term Lemonade is going to focus on growing and winning market share. It will spend aggressively to do so and not worry about profits. In recent years, Wall Street has rewarded this strategy. Given Lemonade's first-mover advantage and early success, there's no reason to believe that it can't be successful.