Preface: I have doing a lot of research into LMND lately and I really feel like this stock could 10X in the next 5 to 10 years. With that being said I definitely have some blind spots and made some mistakes before so I am looking for people of the opposing view to convince me against investing in Lemonade. Also, I'll try to be concise because I hate reading long fluff posts.
Total Addressable Market: Insurance is a huge industry (5 trillion dollars worldwide), but more importantly the general sentiment towards insurance is disgust. Any company that can change this relationship and gain market share will inevitably grow a lot.
Competition: Having a large market size does not guarantee success, a company must offer a far better product at a lower price to truly disrupt, this is where competition comes in. Two examples of competitors that I see on the startup level are Root and Metro mile. This is where I believe that Lemonade is fundamentally different than their startup competitors. Companies like Metromile seem to lack the ambition to truly build a lasting brand as they are targeting a small subsection of the auto market that barely drives. I am not suggesting that Metro mile can't be successful, however I am suggesting that they will not be able to build a lasting brand. On the other side, Lemonade seems to be a company that is not satisfied with constraints, rather they are focused on expanding their offerings and countries. I really believe that a company needs to have almost a crazy amount of ambition to be successful, and Lemonade is showing that in their aggressive desire to expand into all types of insurance and multiple countries. With that being said I do acknowledge that flying to close to the sun can be dangerous, Lemonade could run out of money in their pursuit of expansive growth. Overall, if I had to bet I would bet on the company that is being ambitious and trying to become a large multinational brand.
Technological Advantages: Mark Cuban recently mentioned that in the future there will be two companies, the AI have and have nots. I whole heartedly disagree with this. I believe that in the future there will be three types of companies. First companies that do not have AI, second companies that do have and actually use meaningful AI, and third companies that act like they have AI just to warrant a high valuation. I study and work in computer science and it is honestly downright disgusting to see how many companies use buzz words like AI and Machine Learning to get a higher valuation. With that being said I think Lemonade is most likely not one of those companies. While I don't buy some of their general "wE uSe aRtiFicIaL iTellIgeNcE" claims I do really like their tech stack in terms of the automation of claims and unified systems. I think people generally underestimate how fragmented legacy software systems are, Lemonade's systems that are built from the ground up with automation and efficiency in mind seem like genuine step forward in the right direction. Examples of this can be found in that 33% of all claims are paid within seconds through their chatbot. Also even for the claims that are unable to be paid be a bot, the information is collected by the bot and laid out conveniently for the customer service rep to be able to quickly finish the job. The most important thing is that they are able to do this while maintaining a respectable loss ratio (around 70%). I know a lot of people will say that existing companies will just copy the software but I find it extremely difficult to believe that such large companies will conduct a full software rewrite. Instead they will probably only add some fractions of the functionality which will have a smaller effect.
Management: This part is a bit subjective as people can have different opinions and management style. Over the past few weeks I have been listening to all the interviews I can find as well as reading blog posts. I have come to the conclusion people in management such as Shai, Daniel, and Tim are fantastic. Daniel seems to have a clear view of what he wants the company to be and Shai has a track record of success through building Fiverr.
Downsides: I want to acknowledge that no investment is perfect and this is why I want opposing opinions and a discussion. Firstly, the incumbent insurance companies are extremely powerful and will likely not easily give up market share. Insurance companies have large regulatory hurdles and the big companies are some of the biggest lobbyist. Lemonade could be wiped out as soon as they start to get big by some of the bigger incumbents who have both regulatory and capital advantages. Secondly, relating to the capital advantages, Lemonade runs a very real risk of running out of money with their current economics, I hope that the company will continue to have access to capital as the grow because the might really need it.
Conclusion: If Lemonade can continue to rapidly grow their topline while maintaining unit economics I believe that they will be a fantastic investment. Even though they are losing money now, they can continue to grow and become profitable. They have customers who have smaller and lower cost policies (renter's insurance) who will eventually grow in wealth and buy more insurance. While other insurance companies are spending tons of money on marketing and advertising, Lemonade will see their revenue increase (with minimal effort) as their customers (most of whom are young) grow their insurable assets.
Side Note, I tried not to make this is long but I guess I had a lot to say. If you disagree with any of the mentioned points, please leave a comment and explain your opinion. I really want to have a constructive discussion.
Submitted December 13, 2020 at 07:04PM by UninstructiveGospel https://ift.tt/3gLheOH
