Lemonade (LMND -1.36%) stock was a superstar in 2024, growing its price by 127%. However, it hasn't repeated that level of growth in 2025, up just 9%.
Some shareholders might be tiring of the roller-coaster ride that has been Lemonade stock. But selling now could be a mistake, and investors considering the stock might want to buy. Here's why.
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Lemonade has an AI advantage
Lemonade sells insurance, and its business model is modernized with today's technology. It uses artificial intelligence (AI) and machine learning to price policies effectively and with less human intervention. It's all digital, and customers are onboarded with chatbots, which also handle claims. The model has its attractions and membership is growing at a rapid pace, up 21% year over year in the 2025 first quarter to more than 2.5 million.
Most of the company's metrics demonstrate that its model is working. In-force premium, the preferred top-line metric for insurance companies, increased 27% year over year in the first quarter, and the average premium per customer was up 4% to $396. Lemonade's strategy is to draw younger customers and grow with them as their insurance needs expand, and that leads to higher premiums.
Even its loss ratio, which had been dragging it down in the past, looks like it's stabilizing into a downward trend. Gross loss ratio was 73% in the quarter, maintained from the quarter before, and down from 83% the year before.
The only thing that doesn't look stellar is the company's net losses. Net loss was $62 million in the first quarter, worse than $47 million last year. For a company that says AI is going to help it be more cost-effective, that's disappointing.
However, things might be changing soon. Adjusted free cash flow turned positive in 2024, and management is guiding for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be positive before the end of 2026. The company expects to report positive net income in 2027. Once that happens, Lemonade stock is likely to skyrocket.
