What happened
Shares of insurance technology company Lemonade (LMND -0.46%) fell 21% in April, according to data provided by S&P Global Market Intelligence. There wasn't any news about the company in April, but it's been on the receiving end of a general investor backlash against tech stocks and specifically fintech stocks over the past few months.
Pessimistic investors may also be sending the stock price back down after a slight uptick in March in expectation of its first-quarter earnings report, set to be released on May 9.
Image source: Getty Images.
So what
Lemonade was growing consistently before it became a public company, and its strong growth rates and disruptive model enticed investors to buy in when it had its initial public offering in July 2019. As it has scaled, it's had to deal with unpleasant challenges, leading to increased loss ratios and high losses. Investor sentiment soured, and it became a candidate for a short squeeze when that was all the rage last year.
What hasn't changed is how fast it's growing, with more than 1 million customers and solid year-over-year increases for its in-force premium (IFP) in almost all of its quarters as a public company. IFP is the average premium per customer multiplied by customer count, and with both of those numbers growing, Lemonade is demonstrating a solid growth trajectory. In the fourth quarter, customer count increased 43% year over year to 1.4 million, and premium per customer increased 25% to $66, leading to IFP growth of 78% over the 2020 fourth quarter.
Lemonade's winning model included massive scaling last year. The company launched term life policies as well as auto insurance, on top of its core renters and homeowners policies, and pet insurance, which had been introduced in 2020. As customers grow with the company and purchase more and more expensive policies, Lemonade is posting high increases.
That wasn't enough for investors last year, though, who were thoroughly unimpressed with the rising loss ratio -- as high as 121% in the 2021 first quarter -- and expanding losses, especially after its acquisition of car insurance company Metromile.
Now what
After last year's disastrous first quarter, the 2022 first quarter is likely to show improvement. Management also doesn't have any new launch plans right now after a feverish 2021, and it can focus on scaling further. That could lead to even more losses as it expands and invests in marketing, but it should see some payback in higher revenue, more customers, and increased IFP. The first taste of 2022 is coming next week, and shareholders are hoping it will be sweet.
