Making $10B Lemonade... from Lemonade

🧠 The Takeaways

Lemonade, the millennial insurance biz, is on the cusp of the great AI explosion. Let’s ride along to see if they can pull it off or if this is another AI flop. 

1. We’re cutting the frill expenses and getting this biz back to ramen profitable.

2. How will AI actually make this biz profits?

3. Create a competitor bloodbath with better offer targeting.

+ I’m moving again. But DTC brands consistently miss targeting me to buy more.

LBAB! Community - We’re Moving again

We’re moving again.

Unfortunately, we have to move out of our current apartment in Brooklyn. Our current landlord is selling our building, so we had to find another place—luckily we did, in 1 of my favorite neighborhoods in Brooklyn: Park Slope.

As someone who has moved every 12–18 months for the last 10 years, 1 glaring hole in the DTC acquisition stack is not targeting movers.

Every time we move, I budget a couple grand for what I’ll call “the moving upgrades:”

1. The Usuals/Replacements (new furniture, home goods, etc.)

2. Excuse to buy more non-moving stuff (clothing, groceries, beauty)

Basic consumer principle: The wallet’s already out, so why not buy that other stuff we’ve wanted? 

This is a massive missed opportunity for DTC brands since there is no “Recently Moved” targeting in Meta or Klaviyo.

Post Cambridge Analytica, we lost a lot of that great data in the platform (e.g., getting married, having kids.). The weird part is no one is streaming that data in anymore. It’s purchasable through Credit Card/Data providers and plenty of people are still using it.

Why aren’t we doing that in digital channels?

One of the upgrades we had to make was getting Lemonade for insurance, which made me curious about how the DTC model is working for other industries.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. And I was never here.

Lemonade, the millennial AI insurance biz that boasts “you never talk to a human (in sales or claims)”, is rallying in the markets +97% YoY because it says it’ll be 1 of the first AI bizs to make a profit from AI running their biz.

• Share price: $38.18

• Market Cap: $2.8B

• L5 Performance: -45%

• P/E Ratio: N/A

While Lemonade consistently loses $200m/yr, this might be the year they can actually flip to a profit if their grand AI bets can actually scale.

Financial Summary

2024 Financial Statements (YoY Comparison)

Sales: $526m (+22%) 👍
Gross Profits: $172m (+91%)* 🤤
OPEX: $730m (+11%) 🤮

Net Income: -$202m (+15%) 🤢

Link to Company’s earnings

*They don’t officially report Gross Margins, but I subtracted their Rev - Insurance related costs.

TLDR Analysis: Horrible, but Trending Well 🫣

• Gross Profits +91% YoY is unbelievable. 🤯

• OPEX at $376m (72% of Rev) on a biz with a $172m Gross Margin (32%) 🤮🤮

• G&A is flat for 2 years but still 24% of Rev. 🤢/👍

What astounds me the most about this biz is how well it’s doing despite it miserably failing the Rule of 40: Lemonade is a -16.

This is the perfect example of how Wall St. trades on future expectations >>> current performance. They’re 2025 outlook: expect to be profitable. And how if this biz delivers what they say they will, it’s the right trade.

Let’s Fix This Biz

Here are my 3 moves to flip this biz from a $200m/yr loser to the future of insurance.

1) Cut the Frills

Lemonade is rapidly approaching its Uber moment. Expanding market share. Subsidized or bonus features. Millennials love it. 

But it’s still an absolute money pit.

While I personally love the concept of my insurance company donating $2m/yr to the charities I care about, this branding play isn’t moving the needle.

As someone who recently bought Lemonade’s insurance. I feel good about it, but I bought it because (In Order):

• Coverage scope fit my requirements

• Affordability (10x’ed coverage for +5% fee)

• Convenience (Research + Policy done <45 mins)

Basically, the Uber value props. 

There is an interesting test here where they believe they’re reducing fraudulent claims because customers know the excess money is being donated instead of Lemonade keeping the profits.

But let’s be honest.  They’ll make more profits at scale keeping the extra money and re-investing it (how most insurance bizs print cash). Even with fraudulent claims.

Takeaway: Don’t get too cute with value props. Know why Customers buy.

2) The Great AI Overpromise

This biz can’t stop talking about their AI. From naming their Onboarding Quiz AI.Maya to their Claims Agent AI.Jim. They really want you to know they ARE AI. 

BUT…

Where does the great AI growth + savings show up on their P&L?

All as a % of Rev:

• COGS (67%): Lagging industry leaders. Product isn’t more efficient.

• G&A (24%): Not saving a ton of money on Sales/Support.

• Marketing (32%): Insights aren’t driving exponentially efficient growth. 

The investments are still being made, but nothing in the P&L screams “we’re printing money.”

But… 3 interesting signs of life:

• Automating 50% of Support tickets with their AI agent.

• Tech costs -3% YoY while Rev grew 22%. AND in 3 years has gone from 31% of Rev in 2022 -> 20% in 2024.

• COGS +4% YoY. As a % of Rev, fell from 82% (2022) -> 67% in 2024.

IF they can maintain their Tech + SG&A costs, + reduce COGS as a % of Rev and growing another 20–25% for the next 2 years, this flips to a Profitable biz. 

Delivering on the great AI efficiency that was promised. 

Takeaway: AI is all investment today. If it scales, it’ll lead to massive cost savings.

3) Launch the Migration bloodbath

Lemonade’s competitors are blasting $100m+ TV ads (“Save 15% by switching to Geico.”) 

Lemonade’s AI Digital version: Here are your savings of $XXX/yr. Click this button to get your new policy today.

Think Jolie’s Water Report, but for Insurance savings.

It’ll undercut + kill legacy players.

1. Lemonade offers cheaper plans.

2. At scale, their Marketing Spend becomes more efficient.

3. Incumbents collapse when they don’t have a big enough insurer pool.

The Legacy house of cards:

• Sell an insurance plan. 

• Sell that plan to someone else via reinsurance. 

• Hope claims don’t come in higher than the margin on the spread. 

If Lemonade can acquire a decent but not huge amount of customers from incumbents, those bizs implode.

Once Lemonade aggressively grows their new customer base + expands into new markets (Geographically & Products), they’ll continually raise their price until they print profits.

Takeaway: Give customers undeniable offers to leave competitors.

Final Thought

What I struggle with most: Lemonade is the biz I want to see in the world but isn’t 1 I want to invest in.

The low prices + tech-driven playbook + charitable contributions are all the hallmarks of the brands I’d love to see more of in the world.

But it’s been a money pit. I struggle to see how it turns into a $ machine with its current model.

Most Insurance bizs make their money from margin on premiums + investment returns (you give us money, we invest it until we have to pay out claims keeping the difference). But:

1. Lemonade caps their premium upside (they take a defined margin on what they sell vs. resell).

2. They donate the excess of their claim revenue to charities.

3. (Not much $ left for them to invest. Or keep.)

Other than grinding away -> acquiring a ton of customers -> making the pot enormous, I don't see how they’re structurally set up to return their investors’ $. 

Which they have been losing for a long time.

They are running into a ”Dark Knight situation.” You either go bankrupt after sticking to “fairness” principles or live long enough to abandon them + fix the biz model.