Understanding Three Crucial Facts if You Invest in Lemonade Shares Right Now
In the last couple of years, no investment topic has garnered as much attention as the surge of synthetic intelligence (SI). Business leaders across multiple sectors are attempting to capitalize on this technology, while investors aim to strategically allocate their portfolios to seize any potential profits.
Lemonade (LMND -4.16%), the AI-driven insurance platform, has no novelty to this technological transformation. Established in 2015, it has utilized machine learning and synthetic intelligence to provide diverse insurance products for its customers.
Despite a 126% increase in the past three months (as of Dec. 17), this financial technology stock still trades 76% below its peak. To acquire Lemonade when it's down, these three things should be understood first.
Development plan
As a pioneering, technology-driven enterprise, Lemonade has demonstrated strong growth, which is not unexpected. In the third quarter (from Sept. 30), the company generated $137 million in revenue, recording a 19% increase year-over-year. Lemonade's current customer base of 2.3 million is 17% larger than it was three years ago.
Recently, the management unveiled an ambitious goal for Lemonade over the long term. They aspire to reach $1 billion in premiums in the fourth quarter, and then grow this to a staggering $10 billion "in the coming years."
Moving forward, Lemonade's most promising growth prospects lie not just in attracting new customers but also in cross-selling them additional insurance products. By targeting a younger demographic, Lemonade can sell more over time as these customers age and reach major life milestones, such as purchasing a car or a house.
The industry is highly competitive, with established giants like State Farm, Allstate, and Progressive holding longer and more successful histories than Lemonade. These competitors have also been heavily investing in their tech and digital capabilities.
Social commitment
Legally, Lemonade differs from most businesses due to its classification as a certified B corporation. This status obliges the company to prioritize social and environmental concerns alongside its shareholders' interests, ensuring a higher level of accountability and transparency. As one of approximately 2,500 B corporations in the U.S., Lemonade falls into a small yet exclusive group.
Although becoming certified does not come with a fee, Lemonade takes the initiative further by implementing its Giveback program. Once a year, any leftover funds following deductions for fees and claim payments are donated to a cause chosen by the customer. In 2024, 43 non-profit organizations will receive support to build homes, plant trees, and provide emergency food, among other initiatives.
This approach is likely to appeal to potential customers who share Lemonade's values. However, some investors may view this strategy as a distraction or marketing ploy, especially given that Lemonade is yet to turn a profit.
Economic protection
For investors looking to buy and hold businesses for an extended period (five years or more), identifying an economic barrier becomes crucial. This safeguard shields the business from competitive threats and emerging competitors. Given Lemonade's young history and limited scale, it is unlikely to have an economic barrier as of yet.
Its brand recognition may be lacking on a larger stage. Lemonade's data collection capabilities do not match those of its larger rivals, and its size fails to offer the same cost benefits as they do.
Investing in Lemonade shares during a dip carries a certain level of risk. Any competitive challenges could disrupt Lemonade's growth trajectory in the absence of a barrier. With continued growth, Lemonade may eventually develop an economic barrier; only time will tell.
Investors looking to capitalize on Lemonade's potential growth in the finance sector may want to consider investing in the stock, despite its current trade below its peak. With a focus on synthetic intelligence and machine learning, Lemonade has shown strong growth and ambitious plans to increase its premiums, positioning itself as a promising player in the highly competitive insurance industry.
Recognizing the potential risks, investors should also consider Lemonade's young history and limited scale, as well as the competitive landscape dominated by established giants like Allstate and Progressive. These companies have also been heavily investing in their tech and digital capabilities.
