For anyone trying to understand Lemonade's story, here's what I recommend. Start with the slim book on the founding of the company ($LMND): amazon.com/Making-Lemonad…
Here's a narrative on the bear case for $LMND. I'm sharing it with the permission of the anonymous analyst in my DMs. The main questions include: can LMND really achieve the 17% operating margin target by @tebixby, which would mean lower expense ratios than the giants? 🧵
Here is what this analyst wrote:
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So let's be clear and distinguish between expense ratio (that's admin, marketing stuff) and the loss ratio (that's the actual insurance loss)
and lets talk specifically about auto.
So in auto the expense ratio leader is Geico.
Progressive is trying to catch up.
Roughly speaking Geico's fixed expenses are about 10% of premiums and then there is about 6%-8% of customer acquisition/growth spend.
I've never heard a politician who had me smiling and nodding the whole time. Some reasons why:
Suarez says he's talking to local universities as well as courting engineering schools (including Stanford) to open campuses in the state and increase STEM graduates🏆
He understands that taxes don't create wealth. Rather, it's free enterprise and human ingenuity that do. In short, technological progress. It was the industrial revolution--many waves of it--that painted this picture of exponential wealth:
Lemonade $LMND LTV/CAC calculation. First, let's look at TTM LTV and gross profit per customer. Gross profit margin is running ~18-20%. I'm assuming ~70% of S&M spend for advertising:
Also interesting to look at in-force premium growth on a TTM basis, and how many dollars of IFP growth the company got out of every dollar of ad spend ($1.76 in latest quarter):
LTV/CAC calc: assume 20% gross profit margin (IPO video says eventually 35%!), $213 of premium per year, 7.7 year lifetime = $327 of lifetime GP which / $150 of CAC = 2.2x
I haven’t yet read the 449-page report yet, but this is why Zuck said a republican government might be better for Facebook. The conclusion that we must break up our crown jewels, which are consumer staples of the 21st century and create vast consumer surplus, is asinine.
I know a half dozen wrong-headed academics who make their living as moral panic entrepreneurs will be happy about this report.
Nobody else will. Certainly not their customers—the vast majority of us.
Nobody tell the FTC about click-and-collect, delivery...🤦🏻♂️