AI-powered insurance company Lemonade announced on Thursday that it ended 2020 with over one million active customers. However, shares dropped 5.7% on the last trading day of 2020 as short seller Friendly Bear claimed that Lemonade’s update reflected “one of its weakest net add quarters since inception.”
Lemonade (LMND) reported that it hit the milestone of one million active customers in about 1,500 days since its initial launch, which as per the company is “some 15-45 years faster than industry leaders such as State Farm, Allstate, GEICO, and USAA.”
Lemonade’s co-founder Shai Wininger stated “With every new customer, our system grows smarter, our underwriting gets better, and our prices become more accurate and fair. At Lemonade, one million customers translates into billions of data points, which feed our AI at an ever-growing speed. Quantity generates quality.”
In response to the company’s update, short seller Friendly Bear issued a report calling Lemonade “an egregious stock promotion disguised as a social impact company – the company is making a complete farce of the ESG investment movement.”
Friendly Bear stated “Lemonade publicly claims it gives “up to 40%” of vaguely described “unpaid money” to charity – the reality is that it gives a meager ~$1 per customer per year to charities (works out to about ~3% of “unpaid money”)…this is despite a) claiming to be a quasi-for profit social impact company, b) sporting a $7 billion market cap, and c) having raised hundreds of millions from VCs and the public markets that are readily available and on hand.”
With the expiration of the final lockup period, Friendly Bear sees “a rush for the exits in early 2021 with Lemonade falling 90%+ in short order”. (See LMND stock analysis on TipRanks)
Meanwhile, the Street remains sidelined on the stock, with 1 Buy, 3 Holds and 1 Sell adding up to a Hold analyst consensus. The average price target stands at $72.25 and indicates downside potential of 41% from current levels. Shares of Lemonade, which went public in July 2020, have exploded 138% over the past three months.
Recently, Morgan Stanley analyst Michael Phillips reiterated a Hold rating on the stock with a price target of $70 following a series of investor calls with the company’s CFO Tim Bixby about the drivers behind the company’s improved results and future sustainability.
The analyst noted that the company has been experiencing accelerating growth in its premium per customer driven by both mix-based and organic factors. However, he stated that “pricing has not played a material role, but rather management is seeing the maturation of customers accumulating wealth, and in turn more insurable assets”.
“Overall, we see a tailwind to premium per policy as a normal course of LMND’s strategy and operations as the company adds more coverages and its customer base matures,” concluded Phillips.
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