Lemonade Announces Second Public Offering; Shares Pop 14%

Lemonade, Inc announced after the bell on Monday that it would be offering an additional 3 million common shares to the public, just six months after its initial listing on the New York Stock Exchange.

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Around 1.5 million shares will also be offered for sale by existing shareholders, and underwriters will be granted 30-day options to purchase up to 678,647 additional shares.

Lemonade (LMND) will use the proceeds from the Primary Offering for general corporate purposes but proceeds from the Secondary Offering by existing shareholders will be kept by the sellers.

Lemonade is an American insurance company that offers and handles insurance policies using artificial intelligence applications called “chatbots”. The company recently announced that it had ended 2020 with more than one million active users.

Lemonade first went public in July 2020 with a listing price of $29 a share. It ended Monday’s session 14% stronger at a record high price of $183.26. LMND shares are up almost 50% so far this year.

Lemonade’s business model is different from traditional insurers in that it has replaced brokers and bureaucracy with bots and machine learning. The company keeps a flat 25% fee of a customer’s premiums and sets aside the remaining 75% to pay claims and purchase reinsurance. Then, once a year, the company donates unclaimed premiums to non-profit charities of its users’ choice. (See LMND stock analysis on TipRanks)

Morgan Stanley analyst Michael Phillips reiterated his Hold rating on LMND a month ago and set his price target at $70. This implies downside potential of around 62% from current levels.

Phillips’ rating comes on the heels of a series of investor calls with Lemonade’s CFO, Tim Bixby, that focused on the drivers behind the company’s improved results and sustainability into the future. Phillips noted that Lemonade has seen accelerating growth in its premium per-customer and attributes this growth to customers insuring more assets due to the accumulation of more wealth, rather than pricing of premiums alone.

Consensus among analysts is a Hold based on 1 Buy, 3 Holds and 1 Sell. The average price target of $72.25 suggests downside potential of around 61% over the next 12 months.