Just a short while ago, Lemonade (LMND) stock was riding high, surging nearly 70% in just six months. Investors were optimistic as the insurance tech (insurtech) company showed promising growth. But now, the rally seems to have lost steam, with shares tumbling 37.5% over the past three months.
The downturn continued in midday trading on Wednesday, Feb. 26, with down 3% at the time of writing even though the company posted better-than-expected fourth-quarter results.
Lemonade’s latest earnings report showcased solid operational improvements — higher revenue and a lower loss ratio — both positive signs for the business. However, its revenue guidance irked investors. Adding to the pressure, the financial impact of California’s devastating January wildfires has cast a shadow over its near-term outlook.
Strong Q4 Performance with Record Metrics
Lemonade delivered impressive fourth-quarter results, showcasing robust operating metrics. The company’s in-force premium (IFP) — the total annualized premium of active customers — surged 26% year-over-year to $943.7 million, marking its fifth consecutive quarter of accelerating growth. The customer count also expanded by 20% to 2.43 million, while the premium per customer grew 5% to $388.
Revenue was $148.8 million, a 29% increase year-over-year, primarily driven by higher gross earned premiums. Most notably, the company’s gross loss ratio improved to a record-low 63%, with its trailing 12-month (TTM) gross loss ratio improving 12 points year over year to 73%.
Adjusted EBITDA loss also showed improvement, narrowing to $23.8 million from $28.9 million a year ago. This was primarily due to increased total revenue, partially offset by growth-related expenses.
Guidance Misses Expectations
Despite strong Q4 results, Lemonade’s guidance fell short of expectations. Lemonade projects 2025 revenue of between $655 million and $657 million, reflecting 24%–25% growth. However, this fell short of analysts’ expectations of $663.4 million. Similarly, first-quarter 2025 revenue guidance of between $143 million and $145 million missed the $152 million estimate and signaled a sequential decline.
Further weighing on investor sentiment, the devastating January wildfires in California are expected to take a toll on Lemonade’s financials. The company estimates a gross loss of $45 million and a $20 million hit to adjusted EBITDA. As a result, Q1 adjusted EBITDA loss is projected between $46 million and $49 million, reflecting a sequential increase in losses.
What’s Next for Lemonade?
While short-term headwinds exist, Lemonade remains focused on long-term profitability. The company expects to achieve positive adjusted free cash flow for the second consecutive year in 2025 and aims to exit 2026 with positive adjusted EBITDA.
Further, to mitigate catastrophe risk, Lemonade has implemented various strategic initiatives, including geographic and product diversification, partnerships for risk-sharing, and targeted non-renewals in high-risk areas. These measures should stabilize underwriting results and support sustainable growth.
Additionally, the company has been aggressively scaling its Synthetic Agents program, significantly increasing growth investments. In 2024, Lemonade more than doubled its growth spending from $55 million in 2023 to $122 million. Moreover, it paired rapid expansion with a disciplined approach to marketing efficiency, channel diversification, and brand investment. The company’s AI-driven lifetime value (LTV) model plays a crucial role in ensuring capital is allocated with precision, allowing Lemonade to maintain a customer acquisition cost (CAC) ratio above 3:1 and a triple-digit CAC internal rate of return (IRR). This positions the company for sustained, profitable growth while optimizing its marketing spend.
Lemonade’s underwriting performance has also seen meaningful improvements, with its AI-driven pricing model gaining regulatory approvals for rate adjustments. This, combined with continued operating leverage, positions the company well for future expansion.
Final Thoughts: Buying Opportunity or Caution Ahead?
While short-term challenges, including the impact of wildfires and guidance shortfalls, have pressured the stock, Lemonade’s underlying growth story remains intact. The company’s ability to balance top-line expansion with improved underwriting and cost efficiencies suggests it is still on the path to profitability.
Despite Wall Street’s current “Hold” consensus, the recent decline in share price presents a compelling buying opportunity for long-term investors.
