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Lemonade stock jumped over 22% after a strong third-quarter earnings report.
The company's improved artificial intelligence (AI) systems helped lower its net loss ratio to 64%.
Lemonade continues to expand its car insurance in the U.S., alongside renter's and homeowner's policies in Western Europe.
Lemonade (NYSE: LMND) shareholders had a sweet morning on Wednesday, as the artificial intelligence (AI)-powered insurer smashed Wall Street's estimates in a fresh third-quarter report. The stock jumped 22.1% higher five minutes after the opening bell, reaching price levels not seen since September 2021.
Q3 revenues jumped 42% year over year, landing at $194.5 million. Your average analyst firm would have settled for $184.9 million.
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On the bottom line, net losses shrank from $0.95 to $0.51 per share. Here, the Street consensus had pointed to a loss of $0.70 per share. Management's revenue guidance for the fourth quarter also exceeded the current analyst projections.
The headline numbers don't tell the whole story, of course. Lemonade also posted strong growth in customer counts and in-force premium (IFP), with a modest 5% increase in premium per customer. So it's an organic customer-gaining story, not a steep round of fee increases. Lemonade generated $18.1 million of adjusted free cash flow, down from $37.6 million in the year-ago period.
Image source: Getty Images.
I still haven't mentioned the most impressive figure. Lemonade's net loss ratio (an important profitability metric for insurance companies, where lower values are better) dropped to 64%, compared to 69% in the previous quarter and 81% in Q3 2024.
The company's AI systems are finally running an efficient insurance business, trained on years of real-world customer and loss data collection. The cost of handling claims is plummeting, and Lemonade's management expects the lucrative trend to continue. Lemonade's machines are getting smarter.
Moreover, Lemonade is still rolling out its car insurance to more U.S. states, while expanding the renter's and homeowner's policies across Western Europe. All this means the growth story is still in its early chapters.
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Anders Bylund has positions in Lemonade. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.
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