Lemonade's Full-Year In-Force Premium Outlook Misses Expectations. Is the Growth Story Slowing or Just Repricing?
Key Points
Lemonade’s Q2 earnings indicated the company was still growing like a weed.
It raised its full-year guidance but still fell short of Wall Street’s expectations.
It still looks like a bargain relative to its long-term growth potential.
- 10 stocks we like better than Lemonade ›
Lemonade's (NYSE: LMND) stock slumped after it posted its second-quarter earnings report on July 29. The online insurance company's revenue surged 79% year over year to $294 million, beating analysts' estimates by $3 million, and it narrowed its net loss from $43.9 million to $43.4 million, or $0.56 per share, which matched the consensus forecast.
Those headline numbers looked healthy, but Lemonade's full-year in-force premium (IFP) outlook slightly missed analysts' estimates. Let's see if that miss means that its growth story is ending -- or if its valuations are simply cooling off after a big multi-year rally.
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How fast is Lemonade growing?
Lemonade simplifies the Byzantine process of buying insurance through AI-powered chatbots and claims processing services. That digital-first approach made it a popular choice among younger and first-time insurance buyers.
Lemonade initially only offered homeowners and renters insurance at the time of its 2020 IPO, but it subsequently launched pet health, term life, and auto insurance products. It significantly expanded its auto business by acquiring Metromile in 2022.
Lemonade ended the second quarter of 2026 with 3.31 million customers. That's up 23% from a year earlier and more than triple its 1.00 million customers at the end of 2021. Its IFP, gross earned premium (GEP), and gross margins have consistently risen since its public debut, while its gross loss ratio has steadily declined.
|
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.
Was Lemonade's guidance that bad?
For 2026, Lemonade expects its IFP to rise 32%-33%, its GEP to grow 31%, and its revenue to increase 65%. That guidance was actually higher than its full-year guidance in the first quarter, which called for 32% IFP growth, 30%-31% GEP growth, and 62%-63% revenue growth. It also reiterated its prior outlook for achieving a positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the fourth quarter of 2026.
The only issue was that the high end of Lemonade's IFP guidance (between $1.632 billion and $1.639 billion) fell short of Wall Street's target of more than $1.642 billion. Therefore, Lemonade's guidance wasn't bad at all -- it simply wasn't as aggressive as Wall Street's target.
With an enterprise value of $4.03 billion, Lemonade still looks like a bargain at three times this year's sales. It's still an undervalued growth stock, and its latest pullback is a great buying opportunity for long-term investors.
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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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