Insurance disruptor Lemonade (LMND 1.64%) has fallen by more than 90% from its 2021 highs but is finally giving investors a reason to be hopeful. In its third-quarter earnings report, not only did Lemonade report strong numbers, but it gave a surprising update on the company's future, sending shares up by about 35% as of 10:20 a.m. ET on Thursday.
Lemonade gives investors a clearer path to profitability
As mentioned, Lemonade's third-quarter numbers were strong. In-force premium climbed by 18% year over year, and the business generated an 83% loss ratio compared with 94% in the third quarter of 2022, just to name a few impressive statistics. Plus, Lemonade finished the quarter with just under 2 million customers, a milestone that it has likely surpassed by the time you're reading this -- less than three years after surpassing 1 million.
However, the big news is that a path to profitability is emerging faster than many investors expected. Lemonade has $945 million in cash and investments on its balance sheet and burned through $103 million in the first three quarters of the year. But management now says the company will become cash-flow positive by late 2025, and profitable on an adjusted EBITDA basis by early 2026. And not only will it do this without the need to raise more capital, but it expects to have several hundred million dollars in unrestricted cash at that point.
Still an incredibly cheap stock
Even after today's post-earnings pop, Lemonade's market cap is roughly equal to the amount of cash on its balance sheet, meaning that the market isn't giving much valuation to its insurance business at all. To be clear, there's a lot that needs to go right in the next few years for Lemonade to actually reach profitability, but it's looking far more likely than it did a few quarters ago.
