Key Points
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Lemonade has been reporting high growth and improving profits.
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It’s still launching nationwide, and each new region presents a new opportunity to scale.
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Management expects positive adjusted EBITDA in the fourth quarter.
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Lemonade (NYSE: LMND) stock has performed poorly this year despite the company growing fast. It’s down 36% this year, but it just announced its twlevth consecutive quarter with accelerating top-line growth.
There’s only so long the market can remain pessimistic about this stock. At some point, smart investors will recognize the opportunity, and the price will start to climb again. Here’s where it could be in five years from now.
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AI for a better insurance experience
Lemonade is an insurance technology company that has been using artificial intelligence (AI) and machine learning throughout its operations since its inception more than a decade ago. It created its business with a digital infrastructure that underpins everything it does, and management claims that the interconnected parts that communicate give it an edge over incumbents.
Today, all of the insurance companies are moving toward digital and AI, but they also have legacy systems in place are very difficult to simply replace or move into new technology.
The company is attracting loads of new customers who are looking for a better experience, such as digital onboarding and claims without having to speak to an agent, and there has been spectacular growth. In the third quarter, in-force premium (IFP), the average total amount of premiums, increased 34% year over year. Premium per customer increased 9%, and total customers increased 23% to more than 3.5 million.
Management noted that as AI agents start taking over tasks, having one find an insurance policy works in its favor. Customers may tend to consider brand names important, while AI agents will look for the best price and coverage. CEO Daniel Schrieber called it a “potentially transformative shift in insurance distribution.”
The company is also still rolling out, providing a tremendous growth runway for the next few years. Its renters product is now live in every state, and it has launched 25 new product-geography combinations so far in 2026. Its Car product is now live in 14 states, reaching half of the U.S. population.
From a coverage perspective, as it reaches new regions, its growth prospects scale. Each region represents multiple new opportunities from different kinds of policies and bundles. That means even if it doesn’t reach the second half of the population over the next five years, its top line could still double, or more. If IFP growth continues to accelerate and grow at a compound annual growth rate of 35%, for example, IFP would grow from $1.5 billion to $6.7 billion.
The business is starting to work
Lemonade still isn’t profitable, but it’s on track to reach positive net income soon.
For several years, its loss ratio was too high, keeping investors away. The loss ratio measures how much of a policy is paid out as claims, and if it’s too high, the insurance company won’t make money. It’s now competitively low, which means the company’s algorithms are working and its underwriting is effective. As of the third quarter, it has a low 12-month trailing loss ratio of 60%.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss improved from $26 million last year to $20 million this year, and management maintains that it will be positive in the fourth quarter, with a full year of positive adjusted EBITDA in 2027.
At one point a few years ago, management said that it expected to have positive net income in 2027, but it has not recently renewed that guidance. However, it’s likely to happen within the next few years.
In five years, Lemonade is likely to be operating a thriving, profitable business that could capture market share from the insurance powerhouses. For example, Lemonade’s trailing 12-month revenue is less than a tenth of Progressive‘s (NYSE: PGR), but it’s growing much faster. The stock should follow.
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Jennifer Saibil has positions in Lemonade. The Motley Fool has positions in and recommends Lemonade. The Motley Fool recommends Progressive. The Motley Fool has a disclosure policy.
