$LMND reports Q4 2025 earnings February 19, and the setup is strange. Revenue is growing 42% year-over-year, hitting $195M last quarter — the fastest growth rate since 2023. Loss ratios just hit record lows. The company flipped to positive adjusted cash flow in Q3. And the stock is still stuck around $63, down 31% from its September high.
Something doesn't add up — and February 19's numbers should tell us which side is wrong.
The Numbers That Matter
Wall Street expects -$0.41 EPS on $218M in revenue. But the trend lines are more interesting than the point estimates.
| Metric | Q3 2025 | Q3 2024 | Change |
|---|---|---|---|
| Revenue | $195M | $137M | +42% |
| Gross Loss Ratio | 62% | 79% | -17pp |
| Net Loss | -$37.5M | -$67.7M | +45% |
| In-Force Premium | $1.16B | $890M | +30% |
| Adjusted Cash Flow | +$48M | Negative | Flip |
The revenue surge tells its own story. Four straight quarters of accelerating growth, from $164M in Q2 to $194M in Q3. That's not just customer adds — premiums per customer are climbing too as Lemonade moves upmarket into higher-value policies.
That loss ratio drop is the bigger story. Two years ago, Lemonade was paying out 79 cents of every premium dollar in claims. Now it's 62 cents. For an insurer, that's the difference between a money pit and a business.
The Bull Case: AI Is Actually Working
Lemonade's pitch has always been that AI underwriting gets smarter over time — better risk selection, faster claims, lower fraud. For years, that was a nice PowerPoint slide with no proof.
Now there's proof. The gross loss ratio has dropped for five straight quarters. Customer acquisition costs are stable while premiums per customer climb. The AI flywheel that skeptics called vaporware is showing up in the P&L.
Citizens JMP raised their target to $80 and Morgan Stanley set theirs at $85. Citi reiterated outperform in January. The buy-side thesis is simple: if loss ratios keep falling at this rate, Lemonade reaches GAAP profitability by late 2026.
The Bear Case: Still Burning Cash
KBW has a $40 target and an underperform rating. Their argument isn't wrong either.
Lemonade is still losing $0.41-$0.51 per share every quarter. Revenue growth is impressive, but it's partly driven by aggressive customer acquisition spending — $46M in Q3 alone, up 15% from the prior year. Growth that requires constant feeding isn't the same as organic scale.
And the stock at $63 trades at roughly 4.1x forward revenue. For a company that hasn't posted a profitable quarter in its entire public history, that's a lot of faith priced in.
The 12-month range tells the story: $24 to $100. This is a stock that moves on narrative shifts, not fundamentals. One bad catastrophe quarter could reset the loss ratio and tank confidence overnight.
What to Watch Thursday
Loss ratio trajectory. If gross loss ratio drops below 60%, the profitability thesis accelerates. If it ticks back up above 65%, bears feast.
In-force premium growth. The $1.16B IFP number needs to keep climbing. Anything below $1.2B signals deceleration.
Cash flow. Q3's $48M positive net cash flow was a first. If Q4 confirms it wasn't a one-off, the balance sheet narrative changes completely.
2026 guidance. Management has been guiding toward cash flow positivity. Specific GAAP profitability timelines would move the stock.
Bottom Line
Lemonade is the most polarizing name in insurtech for a reason. The improvement is real — loss ratios down 17 points, cash flow flipping positive, revenue up 42%. But "getting less unprofitable" and "actually profitable" are different things, and the stock is priced for the latter.
At $63, you're paying for the AI underwriting thesis to keep working for at least four more quarters. If February 19's results show continued loss ratio improvement and positive cash flow, the $80-$85 targets start looking reasonable. If not, that $40 bear case has a lot of room below.
The risk-reward skews bullish — but only if the loss ratio keeps falling.
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