To put it succinctly, there isn’t very much making Lemonade (NYSE:LMND) stock attractive at present.
Yes, there’s news that the insurance company is launching a new service for pets. That will expand the company’s product mix beyond life, homeowners, and renters insurance. And Lemonade already announced a car insurance offering, Lemonade Car, back in the first quarter.
That isn’t much of a hook, though. There’s any number of insurance stocks from which to choose. They all offer some mix of insurance products. However, it’s an unexciting business model in general. Which is probably why Lemonade gained so much traction in the first place.
Young But Aging Quickly
Lemonade is a relatively new company. The company had a blockbuster IPO in July 2020. And although that IPO happened over a year ago, it’s worth revisiting to understand why LMND stock isn’t worth much now.
Lemonade was hyped as a disruptor. That was because the company uses AI powered bots, AI Jim and AI Maya, to handle customer calls and claims. On top of that, Lemonade gives unused premiums to nonprofits selected by its community. You can see how that would intrigue a certain set of investors.
Further, July 2020 was the height of the pandemic. Lemonade’s revenue had more than doubled in the quarter leading up to the IPO as social distancing pumped up demand for its services. In addition, insurtech, basically anything insurance related which also leverages some degree of technology, was trendy.
And so Lemonade had a strong IPO with prices quickly rising. Then they tanked and questions arose.
And then they rocketed to $180 by mid-January. A big sell-off ensued and finally some sense seemed to emerge. Growth had been slowing and profitability, which had always been an issue, became more central.
Fast forward three quarters and the issues remain the same. The company started strong on the promise of a young, fresh, new play on insurance. But that enthusiasm is relenting in my estimation.
Fundamentally Weakening
The profitability issue, which was pointed out when Lemonade was a crowd favorite, remains an issue.
The company recorded a net loss of $55.6 million in the second quarter this year. That’s up significantly from $21 million in Q2 a year earlier. Ironically enough, that was the time that Lemonade began running up in price.
But now that it isn’t in the news expect it to trade flat. One of the key takeaways from the rise and fall of Lemonade is to simply remain skeptical of grandiose claims.
You can disagree with me here if you like, but in some ways, Lemonade is just too far out there. What I mean is that in its role as an insurance company it simply pretends to be something more than it is.
Here’s just one example of the wishy-washy language the company uses to market its insurance products: “In his book Aleph, Brazilian novelist Paulo Coelho wrote that “in a forest of a hundred thousand trees, no two leaves are alike. And no two journeys along the same path are alike.” We feel this sentiment increasingly applies to customer journeys at Lemonade.”
That kind of marketing is off putting to certain demographics. Combine that with real world concerns like profitability that‘s getting farther away, and you have a problem.
Verdict on LMND Stock
Lemonade isn’t a bad company. It did manage to increase its premiums received by 91% in the second quarter from a year ago. It did this by not only increasing its customer base by 48%, but also by increasing customer premiums by 29%.
The problem is that losses continue to mount. No matter how you feel about their marketing, that’s the reason you should probably stay away from LMND stock.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.