Ricardo Pillai
3 min read
In This Article:
We came across a bullish thesis on Lemonade, Inc. (LMND) on Substack by Steve Wagner. In this article, we will summarize the bulls’ thesis on LMND. Lemonade, Inc. (LMND)'s share was trading at $31.07 as of May 9th.
A woman in her car checking her insurance documents with a satisfied smile.
Lemonade (LMND) started 2025 on a strong note, posting a solid Q1 with impressive growth and progress toward profitability. The company crossed the $1 billion milestone in in-force premium (IFP), a key metric, with IFP growing 27% year-over-year (YoY), reaching $1.008 billion. This marks the sixth consecutive quarter of accelerating top-line growth. Revenue also grew by 27%, totaling $151 million, reflecting the company’s sustained expansion. Despite a significant impact from catastrophic (CAT) events like the California wildfires, which added 16 points to the loss ratio and resulted in a $22 million financial hit, Lemonade maintained a loss ratio that stayed within its target range. Excluding CAT losses, the underlying loss ratio was a healthy 59%, showing continued improvement in underwriting quality.
Lemonade’s operational efficiency was another standout. The company effectively managed its expenses, with operating costs remaining flat despite significant revenue and IFP growth. The company’s AI-driven platform allowed it to scale policy volumes without a proportional rise in expenses. Though marketing spend nearly doubled to $38 million, a substantial portion was financed through Lemonade’s Synthetic Agents program, allowing for continued growth without depleting cash reserves. This disciplined approach resulted in positive cash flow metrics, a sign that the company is on track for a positive adjusted free cash flow (FCF) in 2025, despite absorbing CAT-related costs. Lemonade's guidance for 2025 includes a narrower adjusted EBITDA loss of $135-$140 million, and it remains on track to reach EBITDA breakeven by 2026.
Lemonade Car, the company’s auto insurance line, has also shown strong momentum, becoming the fastest-growing product line in Q1. In-force auto premium grew 10% quarter-over-quarter, outpacing the overall business growth. This indicates that the product is gaining traction, driven by cross-selling to existing customers in its renters and homeowners segments. The company is also leveraging smart pricing and AI-driven underwriting to fine-tune rates, especially targeting safe younger drivers, which has led to higher conversion rates. Although auto insurance loss ratios remain elevated, they are improving as customers renew their policies, a sign that the book is maturing.
