Shares of Lemonade, an online insurance company backed by SoftBank, have surged more than 100% since the company went public on Thursday, pricing its IPO at $29 per share.
The stock, trading under the ticker LMND on the New York Stock Exchange, has skyrocketed 135% in its public market debut, more than doubling to over $65 per share.
Lemonade, a New York-based company founded in 2016, is disrupting the traditional insurance business by using a mobile app to turn property insurance into a Millennial-friendly, consumer-focused product. (It recently appeared on Forbes’ 2019 AI 50 list of America’s most promising artificial intelligence companies, and is an alum of Forbes’ Next Billion-Dollar Startup list in 2018.)
The company offers insurance to renters and homeowners using artificial intelligence and chatbots. Rather than sell policies backed by established insurers, Lemonade retains claim liability on its own balance sheet, allowing it to pay out insurance claims in a matter of minutes or even seconds.
Lemonade said in its filing with the Securities and Exchange Commission that it’s offering 11 million shares in its public market debut: That means it could raise up to $367 million at the IPO price, which would give it a valuation of around $1.6 billion.
That valuation is down from its latest round of private fundraising, led by SoftBank in April 2019, however: Lemonade was valued at $2.1 billion at the time. SoftBank’s recent investment struggles, including overvalued WeWork and Uber, are no secret, but for now, Lemonade seems to be bucking the trend.
One concern for investors: when will Lemonade turn a profit? The company reported $67 million in revenue last year with a loss of $108.5 million, compared to $22.5 million in revenue and a loss of $53 million in 2018.
Lemonade is hopeful that its focus on younger, newer customers—over 70% of customers are under the age of 35 and 90% are first-time buyers of insurance—can help drive the path toward profitability.
“A core part of our strategy is to acquire younger buyers before they become attractive to larger insurers,” says Lemonade’s chief financial officer, Tim Bixby. “As those customers age, that drives up the value of their belongings, their need for insurance and the value to us.”
“Investors are really quite warm to the idea of disruption in the insurance business,” says Bixby. “We’ve been very resilient amid the pandemic—all of our key growth metrics continue to be strong,” he added.
According to Lemonade’s SEC filing, SoftBank will own a 21.8% in the company after the IPO on Thursday. Famed hedge-fund Sequoia Capital and venture capital fund Aleph will each hold a stake of 8.3%. Lemonade’s two co founders, Daniel Schreiber and Shai Wininger, will hold a 28.3% and 29% stake, respectively.
What to watch for
Whether the company can achieve profitability. Bixby says that Lemonade is not profitable yet “by design,” as it is still heavily investing in growth and spending a good deal of money on marketing to attract new customers. But the company is “on the right track,” he says, pointing to Lemonade’s improving cash flow and operating margins in recent years. “I would expect Lemonade to be profitable in the medium term,” Bixby estimates, adding, “but in the short term we see such an opportunity for customer acquisition.” Lemonade, which recently expanded into Europe, is planning to eventually provide customers with more areas of coverage. It will launch pet insurance in the near future, while eventually hoping to add life insurance and auto insurance coverage for its customers.
I am a New York—based reporter for Forbes covering breaking news, with a focus on financial topics. Previously, I wrote about investing for Money Magazine and was an intern at Forbes in 2015 and 2016. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History. Follow me on Twitter @skleb1234 or email me at firstname.lastname@example.org