Dear Investors,

Lemonade is one of my favourite companies to watch out for over the next decade. It is a disruptor that will completely change the insurance agency forever. I have loved this company for a very long time. Please note, I am dollar cost averaging this stock meaning I am buying shares each month on the same day. I think this stock will have incredible growth over the next ten years, but it is not a stock that will “boom” tomorrow. Special shoutout to my insurance agent friends, I know you guys will hate this newsletter, so I am sorry. haha.

Why Lemonade is a Disruptor Company

Founded in 2015 by Shai Wininger and Daniel Schreiber, Lemonade Inc’s main goal is to revolutionize the US insurance industry. You probably know that the financial services industry is well-known for ancient institutions with policies and rules that are usually outdated, yet preserved by laws and regulations.

Transformation is usually slow, and outside competition is often met with considerable resistance, whether you think about insurance, banking, or investment services. And this is the reason it is so exciting and amazing that a disruptor organization finds success in the face of these hurdles.

Lemonade is a disruptor company, which aligns the interests of the customer and the carrier in a way that is financially and economically viable. Note that in many ways, Lemonade is also becoming an incumbent insurer. And it is worth noting that behind the AI, digital, and automation glitz, the nuts and bolts of this business have conveniently converged to the same combination of automation and human engagement as many incumbent insurers in the US. 

Lemonade offers renters and homeowners’ insurance policies in more than 20 US states. And the company recently raised about $300m in a successful funding round. The company has found success leveraging cutting edge technology, a unique business model, and an unrelenting passion for doing good.

 

Reasons to Invest in Lemonade

Increase in the Number of Customers 

One of the best things about Lemonade’s growth strategy is that it largely depends on social media advertising as well as word-of-mouth. After listing of the stock, experts and market analyst expect greater coverage and more brand awareness, and this will further drive growth for the company.

Impressive Earnings

Did you know that this last quarter Lemonade enjoyed more than 115% revenue growth? Also, the company experienced customer growth of about 84% to 814,600 users. And despite the pandemic, improving efficiency, rapid growth, and continued progress towards profitability, all continued. And for a young organization dealing with a massive generational pandemic, this is very encouraging.

Growth in Target Market

Keep in mind that Lemonade’s customers’ average age is about thirty years. These people are fairly tender, especially in the insurance world. For renters and homeowner insurance, these people are often lower premium tickets. And as customers gradually move up the financial ladder, Lemonade can easily broaden its target market towards the wealthier/ higher premium and older age group. This is another great reason to invest in the company.

An AI edge

There is no doubt that Lemonade's most exciting and important edge is the way the company uses AI (artificial intelligence) in order to streamline its business. Note that between its claims-processing bot Jim, customer-service bot Maya, and several back-end processes, Lemonade conveniently handles 32 percent of its support requests via AI, and this represents a dramatic increase from just 6 percent at the end of 2017. 

Did you know that normal insurers may ask about 20 questions to collect 20 data points? On the other hand, Maya asks considerably fewer questions but still collects thousands of data points, which is great. And it can readily store all that collected data far more easily and quickly than a human.

You will also see this benefit in Lemonade's loss ratio, which represents claims paid out divided by insurance premiums collected. Keep in mind that anything under one is profitable. Did you know that in the initial quarter of 2017, the company’s loss ratio was about 3.68 versus 0.82 for many of its big rivals? However, it has steadily improved. The loss ratio was 1.61 at the end of 2017, and in 2019, it declined to 0.79, which is a huge improvement.

Company Profitability

The millennial-friendly insurance company has also seen a massive 266 percent increase in revenue since 2018. Note that just a few years ago, Lemonade’s annual revenue was about $22.5 million, but now it has reached an impressive $82.5 million.

New Product Launch

It is no secret that Lemonade can launch many new products leveraging the firm’s unique DNA. For instance, pet insurance can be a highly lucrative sector where the company can thrive.

Expansion into New Geographic Regions 

Lemonade also has tremendous potential when it comes to expanding geographically. For example, in the US, the company is currently active in only 29 states. Similarly, in Europe, the company is only operating in the Netherlands and Germany. Lemonade currently has no presence in Asia, which represents a significant growth opportunity for the company.

 

Stay Hungry , Stay Foolish,

 

Matt Allen

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