Insurance not beverage.
From Yahoo Finance, February 28:
Insurance sector 'suffered' amid inflation: Lemonade CEO
Shares of Lemonade (LMND) are dropping sharply [down 27.7% yesterday; up 4.9% today] as the company, in a letter to shareholders, outlined a potential drop in profits after “extraordinary challenges” in 2023. The company plans to double its growth budget, which amounted to $55 million in the previous year.Daniel Schreiber, Lemonade CEO, joins Yahoo Finance to discuss the challenges that lie ahead for Lemonade, including rising consumer costs.
Schreiber elaborates on how the business has operated so far, focusing particularly on the impact of AI on operations: "We're really seeing everything getting better. Our loss ratio collapsed by 12% year on year. Our operating expense shrunk year on year. The efficiencies that our AIs are driving, we've been automated through AIs from the get-go, so we're growing revenue 31% and actually shrinking R&D costs, marketing costs, and operating costs because we're using generative AI and other AIs to do a lot of our work for us. All of that emboldens us to continue to invest because every dollar that we invest returns itself about threefold over, and if you're long-term oriented, and we absolutely are, that just makes so much sense."
Video Transcript
BRAD SMITH: Shares of Lemonade plunging this morning after saying 2023 was a year of extraordinary challenges. The insurance company says it's going to focus on growth in the coming year, planning to roughly double its budget, which it warns will hurt profits in the near term. Daniel Schreiber, who is the Lemonade CEO joins us now in studio to discuss more. Thanks so much for taking some of the time here today.
DANIEL SCHREIBER: Good to be with you.
BRAD SMITH: Absolutely. So let's discuss this because the Street sending shares lower, and perhaps just on the announcements that you made around some of the spending plans here to really grow out the business. So what are you going to track up against? What's the barometer to say whether or not some of that spending is working for the company?
DANIEL SCHREIBER: Absolutely. So we're coming off of perhaps our best quarter ever, you know, revenue up by a third, gross profit up three-fold, EBITDA losses halving. So we're really seeing dramatic progress. In terms of our guidance, we did say because of that, we're going to spend more on growth. This is a great opportunity to start growing. We've been growing at an increasing rate.
So we've had 18% a couple of quarters ago, 20, we'll be 21 now, and continuously grow because we do see opportunities for increasing the long term profitability of the business. And insurance is such a huge, vast market that spending now at a roughly CAC to LTV ratio of 3 to 1, every dollar you spend comes back three-fold.
But it does mean that we're going to slightly depress earnings. We're going to continue to improve earnings. Don't get me wrong. EBITDA will increase and get better this year relative to last year, but perhaps at a rate that signals that we're investing in our future rather than just taking the profit now.
SEANA SMITH: I guess in terms of moving the needle, how big of an impact do you see this having on your bottom line in the longer term? And what's more specifically your message to the street? Clearly, there a little bit worried about the spending that's going to be happening here in the coming quarters. But why do you think that this is a strategy that's going to pay off in the long run?
DANIEL SCHREIBER: At a fundamental level, all lights are green. We're really seeing everything getting better. Our loss ratio collapsed by 12% year-on-year. Operating expense shrunk year-on-year. The efficiencies that our AIs are driving. We've been automated through AIs from the get go. So we're growing revenue 31% and actually shrinking R&D costs, marketing costs, and operating costs because we're using generative AI and other AIs to do a lot of our work for us.
So all of that emboldens us to continue to invest because every dollar that we invest returns itself about three-fold over. And if you're long-term-oriented, and we absolutely are, that just makes so much sense. So we're going to continue to do that. We have said that next year, we'll be cash flow-positive. We have said that the following year, we will be EBITDA-positive. We reiterated those. But we have to get through the extra growth before we turn those corners entirely.
BRAD SMITH: As we continue to get more and more reads on inflation and where inflation continues to show up, insurance is one of those areas here. And a lot of consumers perhaps asking why premiums are getting higher, why we're continuing to see that be one of the stickier elements of the services inflation.
From your seat at the helm of Lemonade and all of the services that come forward, why is it getting more expensive? And ultimately, how are you going to look across some of those costs that consumers are still having to pay right now and perhaps bring that down eventually over some time?
DANIEL SCHREIBER: So notwithstanding the great results that we just announced, insurance as a sector has suffered terribly in the last couple of years, largely because of inflation. And most businesses can adjust prices when their costs go up. Insurance companies may not. We're heavily regulated....
....MUCH MORE
When property casualty insurers were pulling out of California and Florida every non-insurance-literate commentator was talking global warming while the insurance company bigwigs were talking the extreme inflation in the cost to repair homes and vehicles.
And though the insurance/reinsurance folks can be right bastards (especially the herverzeckring crowd in Amsterdam) I pay attention to them—and more importantly, their filings with state insurance commissioners—more than I do the peeps who are unregulated.
