Losses narrowed but revenue fell, what happened to the Q3 of the water droplet?

Mantis Observation (ID: TanglangFin), author 丨 Tulin

The "first share of insurtech" water drops, the stock price recently hit a new high.

On November 29, Shuidi's stock price opened sharply higher and continued to rise, rising more than 45% during the session. As of the close of trading at $1.51, up 10.22%, the turnover reached $8.65 million, a new high in nearly two months.

Subsequently, on November 30, Waterdrop announced its unaudited financial results for the third quarter.

After the marketing expenses were reduced, did the water droplets escape the "traffic anxiety"?

According to the published performance data, the net operating income of Waterdrop Company in the third quarter was 779.3 million yuan, down 9.7% year-on-year. Operating loss was $513 million, down 37.1% compared to the previous quarter. Net loss was $477 million, a decrease of 27.3% compared to the previous quarter.

It is not difficult to find that compared with Q2, which announced the first financial report after the listing, this quarter, whether it is operating loss or net loss, Waterdrop has achieved a certain reduction.

This has a lot to do with the fact that water droplets deliberately control costs and expenses.

According to the financial report, in the third quarter, the operating costs and expenses of Waterdrop Company were 1.2923 billion yuan, down 26.4% compared with the second quarter of 2021. At the same time, sales and marketing expenses for the third quarter of 2021 were 781.7 million yuan, and on a quarterly basis, sales and marketing expenses fell sharply by 37.2% from 1.2449 billion yuan in the second quarter of 2021.

It is worth mentioning that the cost of controlled ingredients does not include research and development costs. According to the report, R&D expenses in the third quarter of 2021 increased by 92.9% year-on-year to 102.9 million yuan, compared with 53.3 million yuan in the third quarter of 2020. According to the water droplets, this increase is mainly due to the continued expansion of the R&D team to improve the competitiveness of technology.

However, although Waterdrop narrowed its net loss, Q3's revenue unexpectedly declined slightly, down 9.7% year-on-year. Mantis Watch believes that this may be due to both internal and external factors.

At the external market level, the negative growth trend of the entire insurance industry has formed a certain impact on the performance of water drops.

Statistics from the China Banking and Insurance Regulatory Commission show that in the first three quarters of 2021, the insurance industry achieved a cumulative original insurance premium income of 3.65 trillion yuan, down 1.29% year-on-year. In the case of negative growth in the entire industry, the performance growth of water drops is inevitably affected to a certain extent.

At the internal business level, the reduction of marketing investment has had a certain impact on the ability of Waterdrop to generate income.

After the closure of "WaterDrop Mutual Aid", there are only two main businesses left in Waterdrop, one is the medical crowdfunding business "Waterdrop Chip", the other is the insurance business "Waterdrop Insurance", and the new exploration business Waterdrop Medical.

As of September 30, 2021, approximately 383 million people had donated a total of more than $45.7 billion to more than 2.2 million patients through Droplet Fundraising.

Based on the zero service fee model, It does not generate any revenue from the medical crowdfunding business. In other words, Waterdrop Actually supports almost all of Waterdrop's revenue.

Judging from the summary data of the three quarters, the "performance" of the water drop guarantee is not bad.

As of 30 September 2021, the first-year premium (FYP) generated through waterdrop insurance reached $14.464 billion, surpassing the full year of 2020 and increasing by 37.5% year-on-year.

Specifically, in terms of user data, as of September 30, 2021, the cumulative number of insurance customers of Waterdrop Insurance reached 108.7 million, and the cumulative number of paid insurance customers reached 27.2 million; in terms of product data, as of September 30, 2021, the Waterdrop Insurance platform provided 323 insurance products, of which more than 90% of the first-year premiums were contributed by exclusive customized insurance products.

Of course, this is aggregated data. Based on the fact that the vast majority of water drops still rely on water drop insurance, Mantis Observation speculates that water drop insurance performance in the third quarter of the unannounced third quarter of water drops may have a slight decline compared with the second quarter of this year.

As mentioned earlier, in the third quarter, water drops were more stringent in terms of costs and expenses than before. As early as the release of the second quarter earnings report, Shi Kangping, chief financial officer of Waterdrop, said: "We will gradually focus on quality improvement, rather than quantity growth." In the third quarter, we expect to significantly reduce our sales and marketing expenses. ”

As a result, Waterdrop's marketing expenses for third-party traffic channels decreased by 460.4 million yuan in the quarter. According to the previous "burning money for traffic" model, this part of the marketing expenses reduced by water drops is very likely to have an impact on the revenue of water drops, which in turn affects the company's overall revenue.

Of course, in the view of "Mantis Observation", the slight decline in revenue may not be a bad thing for water droplets.

From the tightening of both operating loss and net loss in this quarter, it is not difficult to find that the profitability of water drops is improving. Based on the slight decline in revenue and the negative growth of the entire insurance industry, it shows that after leaving the third-party traffic dependence, Waterdrop still stabilized the revenue market.

From fundraising for a serious illness to insurance, is it a good business?

However, it is undeniable that the water drop is still in a state of loss and has not yet made a profit. This has to lead people to ponder whether water droplets choose to start from serious illness fundraising to attract traffic to sell insurance, whether it is really a good business.

Based on the aura of "Meituan No. 10 employee" brought by founder Shen Peng, water droplets have attracted much attention since its birth. In the early days of its establishment, Waterdrop had jointly invested 50 million yuan from Tencent, Meituan Dianping, Gaorong Capital, etc., with a valuation of nearly 300 million yuan.

Shen Peng will lead Shui Di on the road of "selling insurance", one is influenced by his father who works at Chinese min Insurance Company, and the other is to see the potential demand of the insurance market. At that time, China's personal insurance penetration rate was only about 10%. Shen Peng feels that as the main consumer force gradually becomes the post-80s and post-90s, there are great opportunities for development on the supply side of the insurance market.

From the initial "water drop mutual aid" to the later "water drop chip", it is not difficult to see that the "way" of selling insurance of water drops is very different from that of traditional insurance companies.

The mutual aid business and serious illness fundraising, although it does not bring direct benefits to the water drop, but it has won it a market reputation, enhanced the trust of users, and then attracted users to buy insurance under the water drop. This greatly reduces the cost of the flow of water droplets.

Independent economist Wang Chikun has also said that the direct customer acquisition cost of water drops is much lower than that of traditional insurance companies, and the Internet attributes make water drops not limited by time and space, which greatly improves transaction efficiency, while in theory, its business expansion boundaries and business scale are not constrained.

But there is actually a certain "risk" in doing so. The traffic pool built on the basis of trust is likely to be shaken by a public opinion news.

The most typical is that in 2019, after the successive occurrence of "Deyun Society's contracted actor Wu Hechen fundraising incident" and "water drop fundraising sweeping building fundraising incident", network public opinion launched a trust "condemnation" of water drops, and many enthusiastic netizens questioned the original intention of water drops.

Therefore, in the following two years, in order to stabilize the traffic of the platform, the water drops had to spend a lot of effort to "throw money". According to public data, in 2019, the sales and marketing expenses of water droplets were 1.057 billion yuan, and the cost in 2020 was 2.131 billion yuan. Droplet losses have also intensified, with a loss of 322 million yuan in 2019 and expanded to 664 million yuan in 2020.

However, after reducing the cost of marketing this quarter, the revenue of water drops has only declined slightly, which to some extent shows that water drops are escaping from the "money for traffic" model in the past two years, and from the narrowing loss point of view, water drops have begun to work.

Of course, the double pressure from the outside cannot be ignored, one from the policy side and the other from the market side.

On the one hand, the market supervision of Internet insurance has gradually become stricter, slowing down the pace of development of water droplets.

The Measures for the Supervision of Internet Insurance, which came into effect in February this year, stipulate that Internet insurance business should be carried out by insurance institutions established in accordance with law, and other institutions and individuals shall not carry out Internet insurance business.

Previously, Waterdrop had clearly mentioned this risk in the listing prospectus. At present, the products on the water drop insurance platform are the products of the cooperation between the water drop company and the insurance institution, and once the model is included in the regulatory scope, the water drop will face a huge blow.

On the other hand, the rising peers have made the market competition faced by Waterdrop more and more intense.

Even in the insurance industry, the same is indispensable to the figure of the big guys. Ant Insurance, a subsidiary of Ant Group, and Micro Insurance, tencent, are both Internet platforms that do not lack money or traffic, and it is not difficult for water droplets to compete with them.

In addition, the Easy Group, which also launched fundraising and mutual aid business, has also developed rapidly in recent years, and is often compared with water droplets. Although Easy Group is not yet listed, it is still a competitor that should not be underestimated in terms of Waterdrop.

On the whole, the external pressure currently faced by water droplets is not small. To change this, Waterdrop must establish a differentiating advantage as soon as possible. Judging from the sudden surge in research and development expenses this quarter, the answer to the water droplet seems to be emerging - to bring efficiency to technology.

In the third quarter, the research and development expenses of water drops increased by 92.9% year-on-year to 102.9 million yuan, which is not a small amount of money, but it does provide a certain degree of help for the performance of water drops.

For example, Shuidi's "smart lead matching" system combines GBDT traditional machine learning with DNN deep model network to improve the matching efficiency between service personnel and users. At present, the application of this system has helped improve the efficiency of the platform by 20%-40%, contributing to the growth of premiums in the quarter.

In general, the water droplets that have grown up from the Internet era have come to an end to enjoy the "era dividend". In the next stage of increasingly fierce traffic and market competition, Waterdrop and traditional insurance companies are once again on the same starting line.

The transformation is destined to be painful, but as long as you improve your advantage and stand firm as soon as possible, there is hope to laugh to the end.

Resources:

1. "The Hidden Business Behind the Water Drop Chip" - City Boundary

2. "Increase in income does not increase profits, and the water droplets after listing are still not good" - investment research observation