should I invest in Lemonade?

Why Is Lemonade Buying Metromile For $500 Million In Stock?

Lemonade is boosting its fledgling insurance business, Lemonade Car, via the acquisition of insurtech upstart, Metromile, but will it work?

Love ‘em, hate ‘em, or never heard of ‘em; Lemonade (NYSE: LMND) is making big moves on Wall Street right now as it delves into insurance technology, or ‘insuretech’. 

This is best summarized in its just-announced acquisition of Metromile (NASDAQ: MILE) last night, but what does this mean for business?

Life’s giving Lemonade more lemons… 

Before we get to Lemonade’s big buying news, let’s take a look at its Q3 report last night too: 

  • Revenue jumped 101% year-over-year (YoY) to $35.7 million.
  • Customer count jumped 45% YoY to 1,363,754. 
  • Net loss also increased to $1.08 per share from $0.57 a year ago due to investments in marketing and expansion. 

All in all, not the worst quarter for a company that has had a rocky 2021, to say the least — its share price is down roughly 40% year-to-date (YTD). So, where does the Metromile acquisition fit in? 

The all-stock deal values Metromile at around $500 million, and shareholders will receive one Lemonade common share for every 19 Metromile shares. It also fits in pretty nicely with Lemonade’s new segment, Lemonade Cars, which was launched just last week. 

Metromile offers pay-per-mile car insurance, licenses a digital insurance platform to insurance companies around the world, and provides a digitally native offering featuring smart driving features, automated claims, and vehicle information. Lemonade’s own data and AI-driven insurance business model will now receive a cornucopia of user data, given Metromile’s licensing across 49 U.S. states. 

Suddenly, Lemonade is no longer a newcomer in the data-driven car insurance space, but “at the vanguard” — the company’s words, not mine. And I tend to agree that this is a smart acquisition. Metromile has been considered severely undervalued by bulls, thus the acquisition price was good, and the pair slot in nicely together to create a strong, AI-driven insurance model. 

The deal is set to be completed sometime in Q2 2022.

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