I'm also very bullish on LMND. But when LMND launched its new car insurance, I thought like: "Yeah, that's the right move. And it's going to be their 'proof of concept'. Since renter and pet are more like small markets, it really seems like car insurance is a huge and very competitive market. If they succeed in the car insurance market, the management really is top." But now I feel somewhat disappointed, because now we are not able to really judge them on their "own" work if they buy Metromile. Also, why spend millions in building the IT infrastructure, and a week after launch, buy a competitor that already has a (probably slightly different) IT infrastructure? Now they have to spend money on integration and data transfer...
Also I read the Metromile Q2 report. They started to build a distribution system with 600 independent insurance agents. How are they going to deal with this investments (sunk costs?) and people? Also, Metromile started a cooperation with Hippo (LMND competition), how are they going to deal with this?
As you mentioned, this acquisition raises - for me - more questions than answers.
Thanks for the kind words. I agree that car insurance was a big tester for Lemonade and that rapid traction within the car insurance market would've helped to dispel a lot of the doubts about Lemonade being able to compete in larger and more competitive markets.
I definitely echo your concerns about integrating the IT infrastructure from MILE. I would've liked in the conference call to have been given some more context from management as to WHEN they began talking with MILE. It must've been somewhat of a fast process otherwise why would Lemonade have invested into building their own car insurance product if they knew all along they were going to buy MILE?
Regarding the insurance agents and partnership with Hippo, I think Lemonade will have to dial back on those. The partnership with Hippo was to bundle MILE's car insurance with Hippo's homeowners insurance. I'm not sure how lucrative this deal was for Hippo/MILE but if it was relatively meaningful, it might put LMND in a stronger competitive position due to less cross-selling opportunities for Hippo, exposing their single product offering. Not a fan of MILE's independent insurance agents model so I think LMND will pull back on this and continue more with their D2C approach.
I think it'll take some time to digest the acquisition and really see whether it bears fruit. I'm thankful that it wasn't a super large/dilutive acquisition for shareholders. I've seen what can happen when large acquisitions go wrong (e.g., Teladoc buying Livongo Health).
BTW: I'm in the process of starting a YT channel where I'd like to discuss topics like this. Would you be interested in participating in a conversation/interview via Zoom that I would post on YT later?
Hi Jordan,
I love your analysis and I could not agree more.
I'm also very bullish on LMND. But when LMND launched its new car insurance, I thought like: "Yeah, that's the right move. And it's going to be their 'proof of concept'. Since renter and pet are more like small markets, it really seems like car insurance is a huge and very competitive market. If they succeed in the car insurance market, the management really is top." But now I feel somewhat disappointed, because now we are not able to really judge them on their "own" work if they buy Metromile. Also, why spend millions in building the IT infrastructure, and a week after launch, buy a competitor that already has a (probably slightly different) IT infrastructure? Now they have to spend money on integration and data transfer...
Also I read the Metromile Q2 report. They started to build a distribution system with 600 independent insurance agents. How are they going to deal with this investments (sunk costs?) and people? Also, Metromile started a cooperation with Hippo (LMND competition), how are they going to deal with this?
As you mentioned, this acquisition raises - for me - more questions than answers.
Any thoughts?
Kind regards.
Hi Kareem,
Thanks for the kind words. I agree that car insurance was a big tester for Lemonade and that rapid traction within the car insurance market would've helped to dispel a lot of the doubts about Lemonade being able to compete in larger and more competitive markets.
I definitely echo your concerns about integrating the IT infrastructure from MILE. I would've liked in the conference call to have been given some more context from management as to WHEN they began talking with MILE. It must've been somewhat of a fast process otherwise why would Lemonade have invested into building their own car insurance product if they knew all along they were going to buy MILE?
Regarding the insurance agents and partnership with Hippo, I think Lemonade will have to dial back on those. The partnership with Hippo was to bundle MILE's car insurance with Hippo's homeowners insurance. I'm not sure how lucrative this deal was for Hippo/MILE but if it was relatively meaningful, it might put LMND in a stronger competitive position due to less cross-selling opportunities for Hippo, exposing their single product offering. Not a fan of MILE's independent insurance agents model so I think LMND will pull back on this and continue more with their D2C approach.
I think it'll take some time to digest the acquisition and really see whether it bears fruit. I'm thankful that it wasn't a super large/dilutive acquisition for shareholders. I've seen what can happen when large acquisitions go wrong (e.g., Teladoc buying Livongo Health).
Cheers,
Jordan
Hi Jordan,
thank you for your answer.
Let's see how this develops.
BTW: I'm in the process of starting a YT channel where I'd like to discuss topics like this. Would you be interested in participating in a conversation/interview via Zoom that I would post on YT later?
Kind regards
Kareem