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Lemonade Could Grow 100 Times and Still Be Smaller Than State Farm

By Neil Rozenbaum – Dec 6, 2021 at 11:00AM

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A small fish and a very big pond.

Last week, Lemonade (LMND 5.66%) CEO Daniel Schreiber went on the Motley Fool's Industry Focus podcast. I'm going to cover some of the crucial points from that episode. You can find the video below, but here are some of the highlights. 

  • Lemonade chose to start with renters insurance because it's cheap and the company can work its way up from there.
  • In the future, it will be building an investment portfolio.
  • The big difference between Lemonade and other insurance technology companies is that the others are pure plays on one type of insurance. Lemonade isn't trying to just offer you just renters, or just homeowners. It wants to be able to offer you every insurance product possible. Schreiber said numerous times that Lemonade has been operating with one hand tied behind its back because until recently it couldn't bundle homeowners insurance and car insurance. This meant that it was losing customers to competitors because it couldn't offer bundling.
  • Lemonade has trailing-12-month (TTM) revenue of 25 times, but that's taking revenue into consideration and not in-force premium, which is the most crucial metric with insurance companies. If you take that number you'll get a much lower multiple, eight times. That's still high if you compare it to the TTM revenues of other insurance companies. (GAAP accounting practices don't allow you to recognize premiums that are reinsured.)
  • The acquisition of Metromile is a steal. Lemonade got 49 state licenses, $250 million in cash, and $100 million in-force premium in an all-stock deal worth $350 million. 
  • Life insurance in dollar terms is generating three times what renters was generating at the same point in its life cycle. And a friendly reminder: Lemonade is reselling this product and not underwriting it. That results in 90% gross margins on this specific product. 
  • Lemonade expects to multiply its business by 10 and then by 10 again. This would mean going from close to $400 million in IFP to $4 billion and then to $40 billion. Even after that, it would still be half the size of State Farm!

For full insights, do watch the video below, and consider subscribing. 

*Stock prices used were the closing prices of Dec. 3, 2021. The video was published on Dec. 5, 2021.

Neil Rozenbaum owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Lemonade, Inc. The Motley Fool has a disclosure policy. Neil is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

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