Lemonade Inc

Key Reasons for Buy

• Exceptional Financial Performance in Q4 2024: Lemonade, Inc. (NYSE: LMND) delivered an outstanding fourth quarter in 2024, marking its strongest performance to date with significant financial achievements. The Company reported an In Force Premium (IFP) of USD944 million, reflecting a 26% year-over-year increase and marking its fifth consecutive quarter of accelerating growth, while revenue surged by 29% to USD148.8 million. Gross profit soared by 90% to USD64 million, achieving a margin expansion of 14 points to 43%, and the full-year gross profit nearly doubled to USD167 million, up 98% from 2023. The gross loss ratio improved to 63% in Q4, the best ever recorded by Lemonade, with the trailing twelve-month (TTM) gross loss ratio at 73%, aligning with the target range and showing a 12-point improvement year-over-year. Adjusted EBITDA loss narrowed by 18% to USD24 million, and for the first time, Adjusted EBITDA excluding growth spend was positive, while the quarter generated USD27 million in Adjusted Free Cash Flow (Adj. FCF), contributing to a full-year positive Adj. FCF of USD48 million.
• Consistency and Predictability in 2024 Results: Lemonade’s 2024 financial performance underscored the reliability and predictability of its operating model, successfully meeting its initial guidance despite macroeconomic challenges such as elevated inflation and a highly active catastrophe season. The Company had forecasted an IFP range of USD938 to USD942 million and an Adjusted EBITDA loss of USD160 to USD155 million in February 2024, ultimately achieving USD944 million in IFP and an Adjusted EBITDA loss of USD150 million, reflecting a 13% improvement year-over-year. This precision in forecasting and execution highlights Lemonade’s resilience and strategic focus, delivering 26% IFP growth and sustained financial stability amidst industry headwinds, positioning it favorably for future scalability.
• Key Drivers of Financial Success: The primary drivers of Lemonade’s 2024 performance were accelerating growth, underwriting excellence, and disciplined expense management, all underpinned by its proprietary AI-driven technology. Growth investments more than doubled to USD122 million from USD55 million in 2023, fueled by the Synthetic Agents program launched in July 2023, maintaining an LTV/CAC ratio above 3:1 and a triple-digit CAC IRR, resulting in five consecutive quarters of IFP growth acceleration. Underwriting precision, powered by the LTV model, achieved a TTM gross loss ratio within the target range, supported by regulatory rate approvals ensuring rate adequacy across most of the portfolio. Expense management remained disciplined, with operating expenses excluding growth spend rising only 2% to USD332 million, despite 26% topline growth, demonstrating significant operating leverage and a clear path to profitability.
• Pet Insurance: A Model of Operational Excellence: Lemonade’s pet insurance segment exemplified the efficacy of its business model, achieving USD283 million in IFP by the end of 2024, a 57% increase from 2023, just four years after its launch. The segment recorded a gross loss ratio of 69%, meeting target levels, driven by AI-powered pricing models that enhanced underwriting granularity and improved conversion rates while lowering new business loss ratios. Operational efficiencies were notable, with the cost per claim dropping to a historic low of USD19, enabled by AI automations such as medical records review, which facilitated near-instant claims decisions. Operating in a rapidly growing market with a 26% multi-year CAGR and only 4% penetration, Lemonade’s pet insurance business is poised for continued expansion and efficiency gains.
• Response to California Wildfires and Customer Commitment: The January 2025 California wildfires posed a significant challenge, with Lemonade estimating a Q1 2025 impact of USD45 million in gross losses and a USD20 million hit to Adjusted EBITDA. However, the Company’s diversified portfolio across home, renters, pet, and car insurance, along with proactive catastrophe exposure management, mitigated the potential impact, which could have been five times greater without these measures. Lemonade’s response was exemplary, leveraging AI and aerial imagery to settle hundreds of claims within an hour of submission, even amidst active fires and evacuations, earning a customer satisfaction score of 4.98 out of 5 and a Net Promoter Score of 91, reflecting its unwavering commitment to supporting customers during crises.
• Strategic Growth Initiatives and 2025 Outlook: Lemonade extended its Synthetic Agents financing partnership with General Catalyst through December 2026, securing an additional USD200 million to fund growth investments, with a net outstanding balance of USD83 million at year-end 2024, having fully repaid borrowings from its first three cohorts. For 2025, the Company projects continued IFP growth of 28%, reaching USD1,203 to USD1,208 million, and revenue of USD655 to USD657 million, while anticipating an Adjusted EBITDA loss of USD140 to USD135 million, reflecting a 40% increase in growth spend and the wildfire impact. Lemonade expects to maintain positive Adj. FCF for the second consecutive year and remains on track to achieve positive Adj. EBITDA by the end of 2026, supported by its strategy of sustained growth, loss ratio stability, and operational scalability.

Technical Observation (on the daily chart):

The 14-day Relative Strength Index (RSI) is currently at 42.61, currently consolidating near mid-levels, with the expectations of consolidation or upward momentum if the USD 25.00-USD 27.00 support holds. In addition, the current price is below both the 50-day Simple Moving Averages (SMAs) and 200-day SMA, which may work as medium to long term resistance levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Speculative Buy’ rating has been given Lemonade, Inc. (NYSE: LMND) at the closing price of USD 27.30, as of April 22, 2025.