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Can Tencent-backed Waterdrop rebound from weak debut?

Chinese online insurer Waterdrop, backed by gaming giant Tencent Holdings, sustained its share price decline that began with a first-day slump.

  • Waterdrop Inc (NYSE: WDH) share price slumps to US$7.92 per share
  • The insurance tech play listed in New York last Friday, in a lacklustre showing
  • Growing its user base will be more important than profits, Waterdrop’s CEO said
  • Regulatory uncertainty and potential prolonged losses may present challenges ahead
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Waterdrop stock continues slide after disappointing debut

Shares of newly listed online insurance technology company Waterdrop fell another 6.8% to end Tuesday (11 May 2021) at US$7.92. They had tumbled 12.4 per cent at Monday’s close.

At its New York Stock Exchange debut last Friday (07 May 2021), the WDH stock had opened at US$10.25, about 14.6% below the initial public offering (IPO) price of US$12 per share.

It hit an intraday high of US$11.77 and a low of US$9.55, before closing Friday at US$9.70, down 19.2 per cent from the IPO price.

Reuters noted that the counter’s debut performance was seen as a ‘key test of investor appetite’ for Chinese fintech players amid China’s regulatory crackdown on such firms.

Waterdrop IPO: What were the highlights?

The stock sale raised US$360 million, at a valuation of US$4.7 billion based on the IPO price of US$12 a share, Bloomberg reported.

The Tencent-backed, Beijing-based insurer had been valued at around US$2 billion in a pre-IPO funding round in August 2020.

At Tuesday’s close, Waterdrop’s market capitalisation had fallen to US$3.12 billion.

It plans to use the listing proceeds to increase its online insurance offerings that cater to smaller cities in China and young internet users, founder and CEO Shen Peng said.

Besides Tencent, Waterdrop’s investors include Zurich-based reinsurer Swiss Re, Chinese private-equity firms Boyu Capital and Hopu Investments, and Chinese food-delivery behemoth Meituan.

What lies ahead for Waterdrop?

In the short term, the loss-making company will prioritise user growth over becoming profitable. It is also aiming to become China’s version of American health insurance giant UnitedHealth Group in 10 years, Reuters reported.

Waterdrop has incurred net losses and negative cash flow every year since Shen founded the firm in 2016. Last year, it lost US$101 million, even though its revenue more than doubled year-on-year to US$464 million.

Guotai Junan Securities’ research team wrote that for Waterdrop to turn a profit, it needs to persuade existing clients to buy more products and increase the average value per user.

Waterdrop does not intend to revive its once-popular mutual-aid service, Shen said in a Reuters interview.

The ceasing of operations at the mutual-aid business, while not having a significant impact from a business perspective, could prompt complaints and lawsuits against it and damage its reputation, the company noted.

The firm also faces challenges in several areas, such as regulatory uncertainty and prolonged losses if it spends for expansion, its IPO prospectus stated.

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