Produced | Tiger Sniff Business Team
Author｜Li Ling
Head image｜IC photo
On April 17, Beijing time, the parent company of DipChip submitted a listing application to the SEC, planning to list on the New York Stock Exchange through the issuance of ADS under the code “WDH”.
In this prospectus, Waterdrop defines itself as “a leading technology platform dedicated to insurance protection and medical and health services”, but did not announce the number of shares issued and the amount of funds raised. When the news of Waterdrop’s listing in the United States came out in the second half of 2020, its market value was around US$6 billion.
In fact, in the current division of business areas in my country, it is difficult to properly summarize and define Drip. If the only profitable insurance brokerage business currently fits “insurance protection”, medical and health services are part of Drip’s unproven feasibility.
The core business model of Waterdrop at this stage is to “establish a social network of protection and assistance through Waterdrop Chips, Waterdrop Mutual Aid and Waterdrop Insurance, so as to increase the insurance awareness of domestic consumers, and then provide insurance protection and medical and health services.”
In other words, Waterdrop first obtains strong-associated social users through online fundraising (waterdrop financing) and network mutual assistance (waterdrop mutual assistance), and establishes the user’s risk control mind, and then uses the Internet insurance broker (waterdrop insurance mall) business to provide users with risks. The solution is to sell insurance.
Not long ago in March, Water droplets shut down water droplets help each other . Compared with Meituan, which shut down its mutual assistance business earlier and returned all of the user’s share of the money, Waterdrop made a unilateral notice and did not give users any compensatory measures. From the perspective of the industry, The unilateral shutdown of Waterdrop Mutual Aid is clearing the barriers to listing and also reflects the urgency of its listing.
No matter what, the water droplet will have the title of “first share”, but the specific definition of which field is not so appropriate. Both online mutual assistance and online crowdfunding are currently in a dark area of regulation. The former is forced to close due to compliance risks, and the latter has not yet issued suitable regulatory regulations, but it has been criticized by public opinion several times for harvesting love. Neither of them has the ability to be benchmarked for listing.
The intermediary commissions earned by insurance brokers are essentially flow realization, with limited sustainability, and it is hard to say how high the technological barriers are.
The core business is under a strong regulatory environment, and the new business is still in its infancy. Why is Water Drop eager to go public at this time? The answer is hidden in the data in the prospectus.
Lose for three years, you may lose more years
The prospectus disclosed that from 2018 to 2020, the total revenue of Waterdrop was 238 million yuan, 1.511 billion yuan, and 3.028 billion yuan, respectively. Revenue in 2019 increased by 535% year-on-year, and in 2020 it increased by 100% year-on-year.
Water drop’s revenue has not yet covered expenditures. Water drop’s total operating expenses for the same period were 426 million yuan, 1.705 billion yuan, and 3.524 billion yuan, respectively, with year-on-year growth of 300% and 107% in 2019 and 2020, respectively.
Its net losses for the same period were 209 million yuan, 322 million yuan, and 664 million yuan.
In other words, in the past three years, Waterdrop has earned 4.8 billion yuan in revenue and nearly 1.2 billion yuan in losses. The loss in 2019 increased by 39% year-on-year. In 2020, the revenue growth rate dropped sharply, and the loss also expanded at the same time, with a year-on-year increase of 106%. The risk factors section of the prospectus stated that operating losses may continue in the future.
Judging from the growth rate of the last two years alone, the trend of water drop’s revenue and expenditure remains the same: when expenditure doubles in 2019, its revenue growth rate reaches its peak. Expenditure shrinks in 2020, and revenue growth has also begun to fall off a cliff.
Waterdrop was established in 2016. According to the development stage of the Internet company, it will either precipitate or erupt in three to five years. Waterdrop belongs to the latter. Based on social traffic, it broke out earlier, but the abnormal business growth at this stage “brakes” because the business model causes traffic. To the top of the realisation, or the phased investment is too large, some clues may be seen from the marketing expenses.
From 2018 to 2020, the marketing expenses of Water Drop were 185 million yuan, 1.058 billion yuan, and 2.131 billion yuan, respectively. The three-year marketing expenses were as high as 3.374 billion yuan.
If split into the proportion of annual operating expenses, Waterdrop’s marketing expenses in 2018 accounted for 43% of operating expenses, marketing expenses in 2019 accounted for 62% of operating expenses, and marketing expenses in 2020 accounted for 60% of operating expenses.
Marketing expenses account for 60% of operating expenses, and it is not a good thing to look at where they are placed. Furthermore, the high marketing costs also represent the high cost of acquiring customers at the front end of Waterdrop. Under the trend of tightening supervision, whether marketing can be used to drive business growth has to be questioned.
In contrast, the R&D expenses in the above period were 69 million yuan, 215 million yuan, and 244 million yuan, accounting for 16%, 13%, and 7% of operating expenses during the same period.
The highest proportion of R&D investment is less than 20%, and the lowest is only 7%, and there is a tendency to decrease. In this case, Waterdrop has to say that it is a technology platform, most likely to tell a good story to the capital market.
For water droplets whose income is far from covering expenditures and needs to rely on continuously increasing investment in marketing to maintain operation, Getting money on the market is a matter of course. But the previous valuation of 6 billion yuan is likely to be greatly discounted.
A company that sells insurance, worth $6 billion?
From the perspective of revenue composition, Waterdrop can be called “a company that sells insurance.”
Its revenue is composed of four parts: “income from securities, futures and insurance brokerage business”, “technical service income”, “management fee income” and “other business”.
The first income with a very long name can be simply understood as the diversion fee of Waterdrop Insurance, which is the commission for selling insurance; technical service fee refers to the technological solutions provided by Waterdrop to cooperative insurance companies and institutions; management fee refers to Waterdrop In the mutual assistance business, the platform extracts 8% of the operating and management expenses from the total mutual assistance fund; other businesses mainly refer to new businesses in the medical service field that have not achieved large-scale revenue.
In 2018, Waterdrop’s total revenue was 238 million yuan, of which insurance commission income was 122 million yuan, technical service income was 59 million yuan, management fee income was 47 million yuan, and other revenues were 10 million yuan, which contributed to the revenue respectively. They are 51%, 25%, 20% and 4%.
In 2019, Waterdrop’s total revenue was 1.511 billion yuan, of which insurance commission income was 1.31 billion yuan, technical service income was 50 million yuan, management fee income was 140 million yuan, and other income was 80 million yuan, accounting for 87% of revenue. , 3%, 9%, 1%.
In 2020, Waterdrop’s revenue is 3.028 billion yuan, of which insurance commission income is 2.695 billion yuan, technical service income is 194 million yuan, management fee income is 110 million yuan, and other income is 29 million yuan, accounting for 89% of revenue, respectively. 6%, 4%, 1%.
A notable trend is that insurance commission income occupies an increasingly important position in revenue contribution, from 50% to nearly 90%. The technical service fees and management fees, which originally combined to contribute 45% of revenue, have been compressed to 10% of their revenue contribution. The contribution of other income to revenue in the past three years is very small, almost negligible.
The “partial branch” of Waterdrop has made insurance commissions a major part of its revenue. At the same time, its insurance income is also concentrated from ZhongAn Insurance, China Taiping Life Insurance, and Hongkang Life Insurance.
As of December 31, 2020, the cumulative number of insurance users of Waterdrop was approximately 79.4 million. In 2018, 2019, and 2020, the cumulative number of users who purchased insurance was 1.7 million, 8.8 million and 19.2 million. Insurance revenues in the first year were 972 million yuan, 6.668 billion yuan, and 14.426 billion yuan.
Among them, ZhongAn Insurance accounted for 21.7% of Waterdrop’s revenue in 2018, China Taiping Life Insurance accounted for 24.8% of Waterdrop’s total business in 2020, and Hongkang Life Insurance accounted for 11.1% of its total revenue in 2020.
With a single core business and a concentrated source of income, it is difficult to find a cure for the problems of Waterdrop’s profitability and growth space in a short period of time. Although the prospectus discloses that Waterdrop has obtained the online medical sales qualification and drug distribution license, its new business related to medical services has weak momentum and large uncertainties, so it is too far-fetched to define it as a medical service platform.
Even if it is valued according to its core business, ZhongAn Insurance, which has an insurance license, has a total market value of no more than 9 billion U.S. dollars. Only the water droplets with an insurance brokerage license are far away from 6 billion U.S. dollars.
The diversion artifact is gone, how else to tell the story
Even at the current stage of continuous loss of money and high marketing expenses, for the Internet star company blessed by the former executives of Meituan, this does not affect Waterdrop’s storytelling for investors.
Waterdrop’s prospectus stated that its user conversion capabilities can realize the lifetime value of user groups through my country’s insurance market, drive long-term growth, and expand the field of medical services.
In other words, insurance income will become the core income of Waterdrop in the longer term, and it will also become the basis for expanding medical services in the future.
But among the risk factors, Waterdrop cited insurance, crowdfunding Business growth is affected by the future development of third-party insurance brokerage agents and the medical crowdfunding industry. Risks such as the uncertainty of changes in the regulatory system .
Waterdrop’s insurance brokerage business is essentially flow monetization. Through waterdrop mutual assistance and waterdrop chip to obtain targeted traffic, it is also easier to convert to related insurance types. Waterdrop’s insurance brokerage license was officially obtained in May 2017, through a wholly-owned acquisition of Baoduoduo Insurance Brokers Co., Ltd.
The biggest difference between an insurance broker company and an insurance company is that the former does not produce insurance but only sells insurance, and at the same time can participate in the design of insurance products. Waterdrop’s second largest revenue is to design insurance jointly with insurance companies based on user data and charge technical service fees. It is still the realization of traffic (data).
After all, insurance brokers still work for insurance companies, and when traffic is always capped, the uncertainty brought about by regulatory changes also makes it harder and harder for platform intermediaries to make money.
In December 2020, the China Banking and Insurance Regulatory Commission will adjust the supervision of online insurance business, which will take effect in February 2021. The adjustment change is that the insurance brokerage platform sets up customer management, information protection, etc. It also requires the platform to standardize promotional materials and marketing activities, and users can only apply for insurance online through the online interface of insurance institutions.
In addition to restricting insurance brokers’ over-acquisition of user information, the China Banking and Insurance Regulatory Commission has also improved the platform’s infrastructure and network security standards, which will undoubtedly increase operational and security costs.
In March, the water drop shut down the water drop to help each other, and only the water drop chip can divert the insurance. In 2018, 2019 and 2020, the first year premium of Water Drop Insurance was approximately 46.5%, 23.0% and 13.0% were from water drop chips.
The user conversion rate of DipChip has dropped visibly. The prospectus did not disclose the total number of registered users of Waterdrop and related growth data. Therefore, it is difficult to judge whether the water drop chip will produce a continuous and stable transformation of insurance in the future.
Now, Waterdrop is undoubtedly a marketing-driven insurance brokerage company. Having not yet proven its potential in the field of medical and health services, coupled with weak profitability, and no longer listing to raise money, I am afraid that even Didi Chai, which has a low operating cost, will not be able to do it.
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