Lemonade's stock crashes on 2024 forecast despite topping estimates
Lemonade's stock crashes on 2024 forecast despite topping estimates
The insurtech company's stock plummeted by 25% at the opening of trading on Wall Street following its forecast of doubling marketing expenses and a deceleration in revenue growth
Israeli-founded insurtech company Lemonade released financial reports indicating a stabilization in cash outflows and ongoing reduction in losses, but investors are unsettled by the forecast for 2024.
Lemonade's stock plummeted by 25% at the opening of trading on Wall Street on Wednesday following the company's projection of doubling marketing expenses and a deceleration in revenue growth. The company stated its intention to increase premiums by 50%, necessitating the doubling of marketing expenses, which will impact the GAAP profit line in 2024.
In 2023, Lemonade significantly slashed marketing expenses from $138 million in 2022 to $102 million, concurrently experiencing robust revenue growth. However, the company now plans to hike marketing expenses to an unprecedented $200 million, constituting nearly half of its revenues, with an anticipated slowdown in growth rate.
Most of Lemonade's policies cater to the real estate market, offering structure and contents insurance, and recently ventured into automobile insurance with the acquisition of American firm Metromile. Pet insurance is another segment of Lemonade's operations.
The company noted that its primary challenge this year will be accelerating growth while minimizing EBITDA losses. It plans to do so by leveraging its artificial intelligence infrastructure to lower its loss ratio and enhance automation and operational efficiency.
However, there is less clarity on Wall Street regarding how AI will curtail Lemonade’s losses, which have been considerable and only began improving last year after implementing a series of efficiency measures and a hiring freeze.
The decision to double marketing expenses comes after just one year of loss reduction, yet profitability rates remain unchanged.
In the final quarter of 2023, Lemonade saw a 5% reduction in operating expenses for the first time and achieved a positive net cash flow, boosting its cash reserves to $945 million by year-end. Revenues surged to $429.8 million, a 67% increase.
Lemonade anticipates first-quarter revenues of $111-113 million on premiums of around $790 million. Adjusted operating loss is projected to be $42 million. Annually, Lemonade forecasts reaching half a billion dollars in revenues for the first time, with premiums of approximately $940 million, but expects an adjusted operating loss between $155-160 million. Overall, this represents an adjusted EBITDA loss similar to that of 2023, totaling $172 million.
From an accounting perspective, Lemonade reported a bottom-line loss of $237 million last year, compared to $298 million in 2022
Despite Lemonade's efforts, it still faces significant losses, particularly notable given the nearly 70% revenue growth. Lemonade's annual outlook also reflects a substantial deceleration in growth to approximately 20%. Long-term prospects suggest Lemonade transitioning to positive cash flow from operations in 2025 and adjusted operating profit in 2026. The lingering question remains whether investors will remain patient amid continued losses until then.
