$0.00
$5.00
bear $0.00
base $0.00
bull $5.00
margin of safety $2.00
market price* $44.20
Business condition attached to the margin of safety
Operating cash flow, after removing working-capital swings (such as growth in premiums received ahead of claims) and after deducting stock compensation, positive for at least two consecutive quarters.
Lemonade sells renters, homeowners, car and pet insurance through a digital platform with mobile apps, in the United States and in Germany, the Netherlands, France and the UK. It ended 2025 with 2,984,513 customers and $1,236.5 million of annualized premium in force, up from 2,430,056 customers and $943.7 million a year earlier. Revenue was $737.9 million in 2025, against $526.5 million in 2024 and $128.4 million in 2021. How we measure earnings. We look at the cash the business generates after deducting stock compensation and the cash that merely reflects growth in premiums collected ahead of claims, plus the capital spending needed to keep operating. For an insurer that is growing quickly, collecting premiums before paying claims flatters operating cash flow, so we strip it out. On that basis Lemonade did not produce positive owner earnings in any year from 2019 to 2025. Per diluted share the figures were roughly -$3.78 in 2021, -$4.25 in 2022, -$3.02 in 2023, -$2.58 in 2024 and -$1.87 in 2025. In 2025 the company reported net cash used in operations of $16.5 million, but that included $58.5 million of favorable working-capital movement and $61.3 million of stock compensation that we deduct. (The 2019 to 2022 working-capital figures are derived from the cash flow statement as what remains after net loss and the listed non-cash items.) Our cross-check of net loss plus non-cash charges less capital spending against the operating cash flow build agrees. What is improving. The loss on each dollar of premium has fallen. The gross loss ratio (claims relative to premiums earned) was 64% in 2025 against 73% in 2024, and gross profit margin rose from 32% to 40%. The net loss narrowed from $202.2 million to $165.5 million. In the first half of 2026 revenue was $552.4 million against $315.3 million a year earlier, the net loss was $79.2 million against $106.3 million, and operating cash flow was -$4.0 million against -$41.7 million. Stock compensation, however, rose to $45.7 million from $25.7 million, and the second-quarter 2026 net loss of $43.4 million was essentially the same as the $43.9 million a year earlier, so the improvement has not been steady each quarter. Growth-path check. Owner earnings per share improved by about 27% in 2025 (from -$2.58 to -$1.87, a smaller loss). Our base case assumes no further improvement in year one, which is below that trailing rate, because a move to profit depends on loss ratios and expense ratios continuing to improve, which has not yet happened. Bear case, $0 per share. Losses continue at roughly the current level and use up the company's capital. The company had $533.6 million of shareholders' equity at year-end 2025, which is under four years of losses at the 2025 owner-earnings rate of about $138 million. The company also now keeps more of its own insurance risk: its main quota-share reinsurance treaties, which had ceded about 55% of premiums through June 2025, were renewed from July 2025 to June 2026 with a cession rate of about 20%. Hurricane losses were excluded from the earlier treaty. Keeping more risk makes results more volatile, because a larger share of any bad claims year falls on Lemonade rather than on its reinsurers. Base case, $0 per share. We give credit only for what the business has already done. It did not generate positive owner earnings in any year from 2019 to 2025, and a turn to profit would require margins to keep expanding, which has not yet happened and so is not credited. With owner earnings still negative, we find no evidenced stream of cash that shareholders can count on, so the case is valued at zero rather than at a negative number. We did not add the balance-sheet cash and investments ($722.9 million of investments and $396.8 million of cash, restricted cash and equivalents at year-end 2025), because those funds are needed to pay claims and to fund the ongoing losses. Bull case, about $5.00 per share. This assumes the improvement of the last three years simply continues: owner earnings per share have improved by about $0.79 a year on average since 2022 (from -$4.25 to -$1.87). Continuing at that pace, owner earnings turn positive in 2028, reaching about $1.00 per share by 2029 and staying there for ten years, after which we assume nothing further. That path is worth about $5.7 in today's money, and we round down to $5.00. We include it only as the 90th-percentile outcome, since it rests on the recent trend and not on anything contracted. What would change our view. Two consecutive quarters of positive owner earnings, a gross loss ratio holding at or below 64% through a full hurricane and winter-storm season with the lower reinsurance cession, and stock compensation falling back relative to revenue would lift our base case. A rise in the loss ratio, or a need to raise new capital, would confirm the bear case. We did not review the terms of the reinsurance renewal that took effect after June 30, 2026, which could change the risk the company keeps.