Neil 𝕏

Below are my thoughts on why $LMND continues to get crushed even after what I consider a good 3Q26, where the metrics that matter most to the business model long-term moved in the right direction. The only fly in the ointment in 3Q26 were the LR comments on pet and Europe, but $LMND made rate filings months ago to address these. This is the kind of temporary fluctuation that all insurers deal with in the ordinary course of business. Nothing thesis changing here. And yet the stock trades like death. It is always possible I am missing something, but my working theory is that the company put itself in the penalty box earlier this year by overpromising, blowing up their own guidance and their supporters in the process. $LMND started the year guiding for flat opex, even with the structural upward pressures of other insurance expenses that are proportional to revenues. But then they also saw an opportunity to make strategic hires to take advantage of the progress in AI to significantly accelerate their geographic and product rollouts. Between those two things we got a huge spike in expenses that blew up the prior guidance. Ironically, I believe they made the right business decisions. We want them to invest to maximize long-term business value. The ongoing accelerating in growth with improving marketing efficiency suggests so. The problem was not the execution. The problem was setting unrealistic expectations that they would have failed to meet even without the extra investment. Put differently, if (even economically rational) decisions violate prior expectations set by the company, it makes investors ask why the company missed their self-imposed targets and whether the underlying model is broken. This happened in two consecutive quarters earlier this year. That is why $LMND is in the penalty box. Companies don't need to tell every bullish story under the sun. Since $LMND is a fast evolving business (especially with the accelerating progress in AI), they need some room in the guidance to make the most value accretive business decisions day to day, even if those sometimes hurt short term numbers. The answer is not to guide on things that you cannot be reasonably certain you can deliver with the normal volatility in the business and investment opportunity set. Instead, be accountable for the top and bottom line guidance you do give, and deliver on it with no excuses. No drama beat and raise stories are good. Long explanations after the fact are bad. Guidance on other metrics is good only as long as you are willing to be accountable for them under a no excuses policy, even while the world around you evolves. The business model of a structurally low cost provider of insurance was fabulous even pre AI (just look at the track record of value creation at Geico and Progressive). And $LMND is super charging this with AI in a way no one else is. You do not have to promise any more than that. The Investor Day will be important. It is a real opportunity to reset the narrative. I hope that the company sets reasonable, first principles, achievable targets, and then just gets to work on beating, raising, and rebuilding investor confidence. I am bullish on Nick Stead, the incoming CFO. Even though he is a young guy just stepping into the role for the first time, his comments on the last few earnings calls suggests that he gets it. I am also glad that @daschreiber acknowledged the other insurance cost pressure in his interview with @PaperBagInvest earlier this year. It suggests that the company understands they should not promise things that are unsupported by the fundamental economics of the business. The reaction to 3Q26 earnings suggests that investors have PTSD over this stock. And anyone who as consistently defended $LMND looks like a bit of an idiot right now, given where the stock is. That is why the stock is having a hard time finding a bottom, imo. Personally, I don't often fight the tape like this, but I currently have my largest long position in $LMND ever. I think that $LMND's business model is special and has the opportunity to deliver tremendous long-term value. And I think that within a couple of quarters the noise from earlier this year will fade as opex growth returns to a normal trend rate. And maybe growth continues to accelerate as a result of this year's investments as well. I have been early, and it has been painful, so feel free to take my opinion with a grain of salt. But I also think it is our job as investors to stand up for good companies going through hard times. I look forward to the Investor Day and to brighter days ahead. cc: @shai_wininger