The stock market was having a generally weak day on Wednesday, but insurance technology disruptor Lemonade (LMND 4.32%) was a big disappointment. As of 10 a.m. EDT, Lemonade's stock price had fallen by nearly 14% to its lowest level since December.
As you might expect, Lemonade's just-released earnings report is behind the move. But at first glance, many of the numbers look quite strong. Lemonade's in-force premium rose 89% year over year to $252 million, and the average customer is paying 25% more in premium than they were a year ago. What's more, Lemonade's customer count is almost 1.1 million, which is impressive considering it had just eclipsed 1 million at the end of 2020. And last but not least, Lemonade increased its full-year revenue guidance range by $3 million at the midpoint.
However, there was one big negative that seems to be outweighing the strong growth. For one thing, Lemonade's loss ratio was 121% for the first quarter, as compared with just 73% for the fourth quarter, as the Texas freeze increased insurance claim activity dramatically. This resulted in a greater loss per share than the market was expecting.
Lemonade says it received "about a year's worth of claims" in the first few days of the Texas winter storm, so it's not hard to see why investors might not be thrilled. However, we saw that Lemonade's business can hold up under an extremely adverse scenario, and excluding the impacts of the storm, the loss ratio would have been solid.
In addition, the next few quarters will be far more important to the Lemonade investment thesis than the first-quarter disappointment, as the company rolls out its high-potential auto insurance business in the near future.