Lemonade stock plummets on secondary supply

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Insurance provider and technology company Lemonade (NYSE: LMND) announced after market close today that it would launch a secondary share offering. In an S-1 filed with the Securities and Exchange Commission, the company said it would offer 3 million shares of common stock for sale. The underwriters will also have the option to sell an additional 678,647 shares based on investor demand.

Lemonade also disclosed that “selling shareholders,” which include select insiders and early investors, would offer an additional 1,524,314 shares for sale. It is important to note that Lemonade will not receive any proceeds from this additional sale. The company has not yet communicated the price of the shares that will be offered for sale. The stock fell about 7% in after-hours trading on the news.

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Lemonade had approximately 56 million shares outstanding as of the date of its last quarterly report in early November, and assuming all shares are sold (including the additional allotment available to the underwriter), this offer will dilute shareholders. of about 6.5%.

Prior to the offer, the directors and officers of Lemonade owned 36.9% of the outstanding shares. After the offer, the group’s stake will drop to 36.5%. It’s not uncommon for early investors to recoup some of their initial investment, and that’s especially understandable given the stock’s recent performance. In fact, now seems like the perfect time to raise additional capital.

Like my fellow Motley Fool Matt Frankel pointed out earlier today, shares of Lemonade hit a new all-time high today after closing up around 14%. The stock has been on fire over the past two months, gaining more than 250% since bottoming out in late October. Strong investor demand drove the stock up 139% on its first day of trading in July 2020. After becoming one of the hottest IPOs of the year, the stock took a break for several months before resuming its upward trajectory.

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