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Marcelo P. Lima

20 May, 7 tweets, 2 min read

$LMND's LTV/CAC is trending in the right direction. This chart shows 1.4x LTV/CAC in the MRQ. The second series shows the *growth* in IFP over the LTM per dollar of ad spend in the same period (~70% of S&M as a proxy):

Here are the inputs. The company released annual dollar retention data with earnings. 81% in Q1 2021, of which 7 points were upsells, so let's say 74% retention. That means 26% yearly churn, or an LTV of 3.8 years. Gross margins are about 20% but will see upward pressure...

...from two sources: first, life insurance, which flows thru at 100% since it's not an owned policy, just commission. Second, a reduction in reinsurance over time as the company proves out its underwriting and keeps more of the economics. I'm using 25%. Note that...

...at the time of the IPO the company said this could go as high as 35%.

Long term model: If we assume best-in-class expense ratio of 15% at scale (similar to GEICO) and loss ratio of 70%, that means a combined ratio of 85%, for an operating margin of 15%.

Today: 1.1m customers @ $230 premium per customer

In a decade? We can model this...

...out with various growth scenarios. Let's assume we agree on 8.4m customers, $1,147 premium per customer = $9.6 billion of IFP, $1.4 bn of operating income, $1.1 bn of earnings. At 20x plus net cash = $28 bn market cap or ~18% IRR from here.

Disclaimer: do your own work...

...and don't rely on this as it's not financial advice of any kind. I'm merely sharing this so that folks can poke holes in it.

(But before you post a short report please understand the difference between a security hole and customers sharing their quotes 😉)

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More from @MarceloPLima

Marcelo P. Lima

@MarceloPLima

13 May

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…

Watch the IPO video:
vimeo.com/437029189

@shai_wininger

Read the blog entries by @shai_wininger (I wish there was a way to filter these). For example, this one:
lemonade.com/blog/the-sixth…

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Marcelo P. Lima

@MarceloPLima

13 May

@tebixby

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:
----------------------------------
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.

For a total of 16%-18% of premiums.

Read 17 tweets

Marcelo P. Lima

@MarceloPLima

12 May

@tferriss

This is a must-listen interview by the inimitable @tferriss with the co-founder of Ethereum (Vitalik) and Naval:

pca.st/episode/045a46…

@VitalikButerin

What’s great about it is @VitalikButerin goes all-out wonky and @naval does the annotations, so to speak.

They also discuss a topic that’s underdiscussed: life extension.

It’s frustrating that more billionaires don’t trade billions for more life extension research so maybe Vitalik and Naval can help pave the way.

Why not create a new country with no FDA where this research can happen unfettered?

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@FrancisSuarez

Great interview with tech startup CEO (and Miami Mayor) @FrancisSuarez 🧵:
nytimes.com/2021/04/29/opi…

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:

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Marcelo P. Lima

@MarceloPLima

18 Mar

So interesting to have Mark Zuckerberg, Daniel Ek and Tobi Lutke on Clubhouse at the same time.

Would've been hard--impossible?--to do in a regular panel.

Zuck on FB:
- 1m active shops
- more than 250m people interacting with them per month
- Next few years will be explosive

Daniel Ek:

Not only does Apple get 30%, which is more than Spotify gets, but they also control our communication with our users even outside the app

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Marcelo P. Lima

@MarceloPLima

3 Mar

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

Company says 2-3x so in the ballpark.

Read 5 tweets

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