What’s Going On Here?Lemonade’s eagerly awaited initial public offering (IPO) last week had investors lined up around the block for the insurance fintech’s sweet, refreshing shares. What Does This Mean?Lemonade is one of a handful of new so-called “insurtechs” using artificial intelligence and behavioral economics to determine how much homeowners and renters should pay for insurance – hopefully more efficiently than its incumbent rivals. And it has all the hallmarks of a fast-growing tech business: revenue that was 200% higher last year than the year before, annual losses that eclipsed said revenue, and the all-too-familiar warning that the firm may never become profitable.
But thirsty investors wanted that nectar no matter what. Lemonade initially set its share price between $23 and $26, but such was the demand that it was soon raised to between $26 and $28. And after its shares hit the stock exchange at a still-higher $29, they went on to more than double just a few hours later – meaning Lemonade is already worth over $3 billion. Who said insurance was boring? (Tweet this) Why Should I Care?The bigger picture: The IPO Strikes Back.
Alongside Lemonade, benefits platform Accolade completed its IPO last week, raising $220 million and gaining investors’, sigh, accolades. Then news broke on Friday that Chinese beverage giant Wahaha was weighing up an IPO to raise $1 billion. Throw in the three Japanese companies that went public last month, and it's starting to seem like IPOs are back with a vengeance…
For you personally: IP-Nope.
A new stock’s first-day performance often determines whether investors see its IPO as a success, especially in the US. But buyer beware: the average day one rise of a new stock in the US is 18%, but according to Bloomberg, most of that benefit falls at the feet of existing investors – SoftBank, in Lemonade’s case – as new backers drive up the stock price. What’s more, 60% of IPO stocks will be trading below their initial price five years down the line. | 