Lemonade's AI Insurance Bet Is Quietly Paying Off. Here's What That Means for the Stock.
Key Points
Lemonade’s core metrics are all improving.
Its stock looks reasonably valued relative to its long-term growth potential.
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Lemonade (NYSE: LMND), the online insurance company that relies on AI chatbots to onboard customers and process claims, took its investors on a wild ride after its 2020 IPO. It went public at $29, hit a record high of $183.26 in Jan. 2021, but now trades at about $56.
Lemonade is still a divisive stock. The bulls believe it will disrupt traditional insurance companies by simplifying the insurance-buying process with its AI-powered platform. Still, the bears argue that its moat is too narrow and its operating costs are too high. But if we take a closer look at its numbers, we'll see that its big bet on AI-powered insurance is paying off.
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Image source: Getty Images.
What happened to Lemonade after its market debut?
When Lemonade went public, it only offered homeowners and renters insurance. But over the following years, it expanded into the term life, pet health, and auto insurance markets. Its 2022 acquisition of Metromile significantly expanded its auto insurance business.
Lemonade's customer count more than tripled -- from 1.00 million at the end of 2021 to 3.14 million in the first quarter of 2026 -- as it attracted younger and first-time insurance buyers. Its in-force premiums (IFP) and gross earned premiums (GEP) also consistently grew by the double digits, while its gross loss ratio declined and its adjusted gross margins expanded.
|
Metric |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|---|---|---|---|---|---|---|
|
Customer Growth (YOY) |
56% |
43% |
27% |
12% |
20% |
23% |
|
IFP Growth (YOY) |
87% |
78% |
64% |
20% |
26% |
31% |
|
GEP Growth (YOY) |
110% |
84% |
68% |
37% |
23% |
28% |
|
Gross Loss Ratio (TTM) |
71% |
90% |
90% |
85% |
73% |
64% |
|
Adjusted Gross Margin |
33% |
36% |
25% |
23% |
33% |
41% |
Data source: Lemonade. YOY = Year-over-year. TTM = Trailing 12 months.
What will happen to Lemonade over the next few years?
For 2026, Lemonade expects its IFP to rise 32%, its GEP to grow 30%-31%, and its total revenue to increase 62%-63%. Over the long term, it expects its IFP to surge from $1.24 billion in 2025 to $10 billion as it gains more customers and launches new insurance products.
From 2025 to 2028, analysts expect its revenue to grow at a 42% CAGR. They also expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive in 2027 and rise nearly fivefold in 2028. With an enterprise value of $4.6 billion, Lemonade's stock still looks reasonably valued at less than four times this year's sales.
Lemonade's accelerating IFP and GEP growth suggests it's carving out a niche in the crowded insurance market, and its declining gross loss ratios suggest its business is sustainable. Its stock could remain volatile, but I believe it has plenty of room to run over the next few years.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.
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