Lemonade stock takes hit after earnings release

Lemonade Inc. shares took a big hit this week after it reported earnings that failed to impress investors.

The insurtech posted a fourth-quarter 2023 net loss of $42.4 million — an improvement from a net loss of $63.7 million in the fourth quarter of 2022. Driven by higher earned premium and an improved loss ratio, the quarter's adjusted gross profit of $35.3 million reflected a year-over-year increase of $17.4 million.

Lemonade's stock closed at $21.72 on Feb. 27, the day that it released its earnings after market hours. The stock closed the following day at $15.70 — a decrease of about 28%.

Lemonade's stocked ticked downwards as investors were simply "not happy" with Lemonade's results, Insurtech Advisors Managing Partner Kaenan Hertz said in an interview.

"What's transpiring here is they still were losing a lot of money," Hertz said. "There doesn't appear to be a true path to profitability that was articulated."

Righting the ship

In an interview with S&P Global Market Intelligence, Lemonade CFO Tim Bixby said that in the company's view, its fourth-quarter 2023 results were "arguably one of the best quarters we've had since going public three years ago."

In addition, Bixby highlighted that revenue, gross profit and in-force premium were up year over year.

"We don't really pay too much attention to the day-to-day stock price moves," Bixby said. "If I were to pay attention I would note that the stock is up about 5% over the past 30 days."

Lemonade was able to grow its customers and premium in the fourth quarter, but it was at a rate of about one-and-a-half times slower in 2023 than in 2022, Hertz said. The average premium per customer grew around 7%.

Hertz noted that Lemonade, alongside the rest of its industry peers, has been "hyping" its ability to get rate increases.

"If you're telling me your average premium only went up 7%, then something's not computing too well," Hertz said.

Hertz said there was a shift over 2023 and in the fourth quarter where Lemonade "lost some of that glory in the marketplace," adding that they were once an "investor darling."

Lemonade is still sitting on a large amount of cash, Hertz said, but added that if the company does not make "significant" operational changes it will become "more challenging to right the ship."

Bixby said he expects Lemonade will grow at a faster pace in 2024 and said there are "strong indicators" that the company is getting closer to break-even.

Lemonade closed on Friday at $16.92 having recovered some of the ground lost earlier in the week.

UnitedHealth feels some pain

In other events this week, UnitedHealth Group Inc. was hit a one-two punch of bad news.

UnitedHealth, which is one of the largest health insurers in the US, was hit by a days-long cyberattack, with a group of hackers claiming it had stolen eight terabytes of data from the insurer. The hack could have included a large swath of sensitive records such as medical insurance and health data.

This week also brought a report that the US Department of Justice has launched an antitrust investigation into UnitedHealth's business model, looking into relationship between the insurer's UnitedHealthcare insurance unit and its Optum Inc. health-services arm, which owns physician groups and other assets.

Stephens analyst Scott Fidel said in a note that he was not surprised to see the DOJ doing this investigation due to the "enormous scale and market presence" of the company's business model combined with the "activist antitrust agenda" being pursued by the DOJ and Federal Trade Commission under the Biden administration.

"While it's uncertain whether the DOJ probe leads to any legal or regulatory actions toward UnitedHealth and/or future changes to its business model, this does represent the introduction of another overhang on top of an already complex investment backdrop for managed care organizations," Fidel said.

UnitedHealth shares ended the week down about 7%.