Lemonade is a company which sells insurance using computing to make faster and better decisions than competitors.
Revenue is growing extremely fast, 199% YoY.
2018: 22.5M
2019: 67.3M
Comparing to Q1 of the previous year it’s growing 138%.
Q1 2020: 26.2M
Q1 2019: 11.0M
Net losses seem to be quite large though.
What’s interesting to me is that the company is being discussed on Hacker News, while most S1’s don’t generate discussions. If you search on Hacker News for S1 you’ll see maybe there’s only 20-30 threads which generate much discussion.
Some people mention in the thread this is not so much a tech company, but a tech-enabled company. I think that’s a fair point, that this is generally not a SaaS company, but more of a software company disrupting an old industry.
They mentioned somewhere in the S1 that the insurance market is very fragmented.
Wondering if anybody knows more about this company or has actually used the product?
Speaking of Meritech S-1 writeups, a different author than the SaaS ones wrote up Lemonade’s S-1. Interesting company with high rev and customer growth – but understanding the financials of insurance companies is not my cup of tea, regardless of how high-tech and AI forward they are. PASS.
I do recall hearing one insurance agent who said the insurance industry has a lot of legacy processes, which involved a lot of manual labor and paperwork. He believed some of these processes can be automated, cutting down time for the agent, and potentially eliminating the agent.
I do recall hearing one insurance agent who said the insurance industry has a lot of legacy processes, which involved a lot of manual labor and paperwork. He believed some of these processes can be automated, cutting down time for the agent, and potentially eliminating the agent.
I was working as an insurance agent in the late 1970s. A friend of mine was the Apple distributor for Venezuela and he lent me an Apple II. I automated my sales process with a spreadsheet (VisiCalc) and with a database (VisiDex). I got more out of the Apple II than my insurance company got out of their HP mini computer.
Yes, insurance might have a lot of legacy processes but new is not necessarily better, only better is better.
I used to really like “market” type companies like booking com but most don’t live up to their potential. It’s a tough business that I have abandoned as an area to invest in.
“Even with great initial growth how often will the same customer buy from Lemonade again?” That was my initial thought. But Lemondade is a subscription based business with renters paying $5+/mo and homeowners $25+/mo.
Homeowners insurance is a $105 Billion dollar industry in 2020 according to IBIS and over $600B when you include property, casualty and direct insurance.
The TAMM for Lemonade seems pretty significant.
I haven’t dug into how the metrics for Lemonade compare to other insurance companies - but would be interesting to see.
But I agree with Denny. Marketplace businesses have more moving parts and I’m wondering how strong this company is, and their potential, compared to a DDOG, FSLY, ZM, CRWD, etc?
Lemonade is a company which sells insurance using computing to make faster and better decisions than competitors.
Revenue is growing extremely fast, 199% YoY.
I would like to offer a personal opinion. First I will note that during my variegated career I spent 7 years as an executive with a prestigious insurance company ,one of the oldest in the US, and watched as it self destructed in slow motion.
I then spent 19 years as an executive with the biggest and most profitable insurer in the world at least during the period I was there. I had a good view of the CEO and his senior execs.
My advice. Don’t waste your time with this company. It will never consistently meet the standards of growth considered minimal on this discussion board.
I have no knowledge about Lemonade, but I have to disagree with you regarding the insurance industry. Technology is changing the game in all industries. Smaller companies are finally able to grow and compete in monopoly industries. I recently went to purchase renters and car insurance and Lemonade was one of the first insurance companies that showed up on google and multiple quote sites. I am not investing in it, but thought I would play devils advocate. Thoughts?
but I have to disagree with you regarding the insurance industry
But, most insurance is just a commodity. Why would one pay more for one carton of orange juice over the other if the contents are generally the same?
Sure, technology is going to squeeze a whole heck of a lot of profit out the system - and already has (I bought my last two insurance policies through reliaquote and accuquote) as well as put a lot of sales people out of business but the tech aspect is unlikely to be a moat. For example, I don’t see Lemonade doing anything that GIECO couldn’t do if they wanted to.
I have a hard time getting excited about revenue growth on such a small base. But it’s still interesting to me
From their SEC filing which I read quickly I had the impression that they were going after standard types of insurances such as home,auto, maybe life and other lines that an individual would need . Comparatively speaking the underwriting requirements are well determined and therefore susceptible to an AI approach.This would allow some rapid growth to occur but it wouldn’t be long before the established insurers would adopt the same methods. Breaking into that business in a big way is fraught.
They might be able to better the performance of the average insurer but this would not be comparable to the performance of companies who provide cloud services.
They could consider offering specialty lines, more efficiently at lower cost but here there is specialized knowledge that is required and underwriters who know their business could compete effectively.
They could at some point go after larger commercial accounts. These lines are well covered and price competition is fierce. Furthermore frequently each case requires specialized knowledge and deep familiarity with the specific enterprise, sometimes across a variety of industrial operations.
I think a new outfit would very quickly find its AI leverage such as it may be to be inadequate for sustained competitive advantage.e
In the SEC filing there is a section which enumerates risks. All of the above items and others are mentioned in a perfunctory set of statements. I believe these risks loom larger than the promotional statements would have you believe.
Remember , this is just my opinion. And I’ve been out of the business now for 20 years.
Whilst I Insurance may be commoditised, it doesn’t mean companies can’t have a moat - Buffet knows more about moats than anyone and the core to BH is insurance!
I also don’t dismiss the potential for fintech to disrupt existing players.
However what I don’t like the look of in Lemonade is:
The segment they are in property and home insurance and liability - it is a mass volume affair with so much competition and the lowest of margins, (specialty lines command higher margins like pet insurance), and liability is an American thing and the rest of the world (as individuals) don’t really worry about it let alone insure against it unless they travel to America.
They say it takes over 2 years to pay back the customer acquisition costs of pure online digital advertising and marketing. That doesn’t sound like a stunning business model financially speaking.
Most fundamentally - their AI is basically a customer service agent chat bot that cuts cost. Any competitor could introduce it. Leaving aside I hate dealing with chat bots as they never provide the service I need, it provides them with zero competitive advantage. It isn’t AI that produces proprietary algorithms for gene mutation detection or something really complicated and differentiating to the core of the platform/product/service - it is literally just AI driven customer service.
So yes it might be growing fast but I can’t see the longer term potential.
The way Lemonade doing business is completed different from traditional insurance companies. They basically take 25% of the premium and use the rest to pay claims.
Lemonade is a peer-to-peer insurance provider. That means people pay their premiums into a communal pot, and claims are covered by the money that’s in the jar.
The most amazing feature of Lemonade’s business model is this: After covering expenses, updating technology, and paying employees, Lemonade will donate leftover money to charity.
Whilst I Insurance may be commoditised, it doesn’t mean companies can’t have a moat - Buffet knows more about moats than anyone and the core to BH is insurance!
Warren Buffett does not like insurance because it is a great business, he likes it for the float, the premiums it generates that he can invest better than others.
The danger in insurance is taking on too much risk for too little premium in the constant price wars the industry wages. What Buffett is after are not the insurance profits but the float and conservative management protects that float. Buffett is happy to let other insurers take the high risks. In this case it’s not an issue of moats at all but of building up the float.
Warren Buffett does not like insurance because it is a great business, he likes it for the float, the premiums it generates that he can invest better than others.
I believe most insurers try to make money off the float and from the huge reserve funds they are required to maintain.Float includes delayed claims which insurers excel at. This keeps many in the business. But underwriting discipline is often lacking. So a year or two of high losses tends to put many insurers out of business.
I hope I haven’t strayed too far OT . Just trying to illustrate why one might make lemons out of lemonade.
