I can’t believe I’m writing about Lemonade again. I have a whole bunch of other topics I’ve been wanting to get to, but when something timely come along, you adapt and change plans.
This has now become a battleground stock between the old school shorts and the millennial longs. Both sides, unfortunately, are ill informed.
What Happened?
So how did we get here? Citron Research, an outfit run by Andrew Left, well known for its short reports, promised a big reveal on Lemonade.
This of course brought the “know nothing” bulls out of their hole. Just check out a few of the replies…
Now you know why I wrote a post debunking the usefulness of TAM!
There are many more like this. I doubt any of these people even know what a loss reserve is, but that’s today’s market.
When insurance people ask me “who is buying LMND? Don’t these people understand the valuation makes no sense”? These are the people buying LMND. Do you understand now?
No? Well here’s another one.
Yes, this guy is so embarrassed by his awful analysis, he has to hide under a paper bag! I, sadly, watched the video and all he does is parrot every optimistic assumption about how technology will change insurance and Lemonade will be the only one to benefit while everyone else fails.
There is no original thought here. It is the dictionary picture of a tout (if the tout in the dictionary picture were wearing a paper bag).
So, most Lemonade bulls have no idea what the company does other than “it sells insurance” and “TECHNOLOGY!!!” Does that mean that Citron is right? Not necessarily.
The Empty Bear Case
So I naturally waited with anticipation for the brilliant analysis Left did or the nuggets he got proving there was some massive problem with the business model. Instead, we got this.
You can watch it if you want, but it is a waste of your time. All he says is (paraphrasing) “the Giveback is BS. They barely give any $ to charity and the founders sold tons of stock. Why didn’t they give their stock to charity instead???”
Welcome to 2017, bruh! Really? That’s all you got? The giveback is a ruse? Yeah, I think some of us have been talking about that for awhile. Good to see you did your homework! I’m guessing Andrew doesn’t know what a loss reserve is either.
Shai Chimes In
Perhaps coincidentally, a couple days before the Citron tweet and just hours before LMND announced its secondary offering, Lemonade co-founder Shai Wininger attacked Seeking Alpha over bearish reports about LMND on the site accusing the writers of “scare tactics and disinformation”.
I hope it was coincidence, because he obviously would have known an offering was imminent and to be tweeting about the stock at all at that point in time is an Elon-esque level of risk and certainly poor judgment.
Seeking Alpha did a good job in that link above defending its content and had links to the reports Wininger was apparently upset about. I read them over and I don’t see anything out of line (though the second one used some aggressive language).
In fact, most of the points in both reports were ones I had made at the time of the IPO. So I guess Shai should be tweeting about me too???
He did delete the tweet later and apologize, but he did show his hand that he is more concerned about the short term value of the stock than previously suggested (perhaps someone gave him reading material on the value in being a Hare?) and it still leaves unaddressed the timing relative to the offering.
The Verdict: These Short Attacks Will Backfire
Shai should spend more time reading my writings and less time at Seeking Alpha. If he did, he would have realized that getting dumb shorts in your stock is a great thing because it creates future short squeezes that take your stock to new highs. Fool shorts are like kindling. They are fuel to propel future gains.
Yes, they cause a little initial pain, but if you are confident you can squeeze them out later, you should welcome them. Even thoughtful shorts risk being squeezed, as we have seen so many times at Tesla.
Dumb shorts are like a gift. They should be welcomed and celebrated. The only reason to fear a short attack is if you know they are right and your business really is going to fail. Otherwise, you ultimately win.
As for Citron, they are usually smart shorts and have had more than their share of victories. Perhaps they come back with something more substantive later. However, this was a wasted bullet on their part.
Don’t draw attention to yourself if you haven’t done the work. I guess that’s a pretty good life rule too, but it’s highly relevant if you want to be a high profile short who will attract lots of criticism. Be prepared. Be credible.
The Seeking Alpha critics had at least done some work. Shai should have left them alone and saved his attack for Citron.
So what happens next? LMND will have a short term retreat that has already begun, but that guy above who said it’s going to $300?
He might not know what a combined ratio is and he might be wrong on his timing, but the shorts have certainly created the rocket fuel to spark a launch to new highs. He may well be proven right, at least for a period of time. If he is, you can bet LMND will raise more capital then and he would be wise to sell into it.