Is Lemonade’s IPO Sweet Or Sour? Only Time Will Tell
IPO stocks are volatile and that is part of the game. Shares of Lemonade (LMND Stock Report) had a dashing start from their debut last week. This helped the insurtech triple the size of its market cap to $4.7 billion in a span of a few days. However, the company, which specializes in offering insurance to renters and homeowners, is not without its fair share of skeptics. With many ‘industry experts’ questioning the viability of the company’s unproven business model, could we expect Lemonade stocks to keep fizzing for now?
Now you may be asking, what could possibly have caused this tech stock to fall 13% yesterday? Well, to tell you the truth, nothing happened. It is important to understand that stocks can make big movements after an IPO for no particular reason. After companies made their debut, most companies are subject to a quiet period unless the company is doing a secondary listing elsewhere. So don’t expect any major news coming out of the company in July or even August. Be that as it may, the stock is expected to have a bumpy ride in the coming weeks ahead, if not months.
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How Is LMND Stock Faring So Far Since Its IPO?
To recap, Lemonade offers insurance for renters and homeowners in the US. The company is known for its use of artificial intelligence to set prices of policies and to assess claims. As such, LMND stock has certainly attracted a lot of attention. Let us look back at the performance of Lemonade stock in the past week. Despite the recent pullback, LMND stock is still up a whopping 136% from its IPO price of $29 per share. And as we have seen, if it can go up without any specific reason or news, it too can fall without warning.
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Can Lemonade Really Disrupt The Insurance Industry?
Before jumping straight to one of the hottest IPO stocks this month, investors may be better off doing more research before diving in. First of all, the company adopts a different business model compared to the traditional insurers. Lemonade allows customers to purchase insurance products as a subscription, starting for as little as $5.
Could this business model really work? Well, the company is targeting a younger demographic. Roughly 70% of the current customers are under age 35. There’s a great chance of high adoption of the young adults. From the company’s survey, it is reported that 90% of Lemondate’s customers said they didn’t switch from another insurance carrier. This suggests these customers could be first-time insurance buyers. Meaning, Lemonade could have penetrated an unreachable market with their attractive low price subscription package.
Lemonade is not just any insurance company with tech features. It is also a public benefit corporation. That means, the company is legally required to consider the social impact of its decisions on its stakeholders. Lemonade believes this could discourage customers from embellishing claims and simultaneously help the general public with the leftover funds. A win-win for both public welfare and for-profit corporations like Lemonade.
Bottom Line For LMND Stock
Insurance is a huge market with plenty of room of disruption. Lemonade has been successful at growing its customer base and keeping them so far. Although net losses are surging, so is revenue for the company. With Softbank and tons of venture capital backing Lemonade, there’s a low chance where investors have to worry about a potential cash crunch. There are fundamentals behind the business, but like most start-ups, if you have the patience and risk appetite to stomach the potential swings, would LMND stock be the best tech stock to buy or sell right now?
