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For years, investors rushed into Chinese stocks in large part due to the underlying population narrative. At over 1.4 billion people, China is basically the biggest market for several industries. But this dynamic isn’t comprehensively positive as an aging population requires greater medical needs. Still, Waterdrop provides both a crowdfunding platform for medical bills and a more traditional commercial medical insurance marketplace.
Waterdrop aims to dominate the burgeoning commercialization of healthcare products and services in China, drawing interest in its stock. Nevertheless, you’ll want to consider all angles before participating.
Waterdrop Financial History
Though chasing a hyped up IPO has its risks, Waterdrop helps justify its enthusiasm with tremendous revenue growth. From its amended Form F-1 with the SEC, Waterdrop generated approximately $36.6 million in revenue in 2018 to $464.1 million last year, representing nearly a 13-fold increase.
Further, its subscription base enjoyed substantial expansion. For the year ended Dec. 31, 2018, paying insurance consumers numbered roughly 1.7 million. A year later, this figure hit 8.8 million. In 2020, it jumped again to 19.2 million.
Nevertheless, it’s fair to point out that management incurred hefty costs for this expansion. In 2018, net losses amounted to $32.1 million. Two years later, net losses widened to $101.7 million. The biggest culprit is marketing expenditures, a necessary evil as Waterdrop introduces a new way of thinking about healthcare products and services in China.
Waterdrop Potential
Initially, Waterdop touted its crowdfunding platform for people seeking help with their medical bills, a sort of GoFundMe for the sick and injured. According to its Form F-1 filing, the company supported the medical expense needs of over 1.7 million patients thanks to its massive social network of 340 million donors. The amount raised translates to approximately $5.7 billion.
Such staggering statistics makes Waterdrop China’s biggest crowdfunding platform. In addition, it attracts colossal traffic, particularly from the Asian juggernaut’s very low income demographic. This trend may continue upward because of China’s aging population. Due to steep declines in birth rate -- which the COVID-19 pandemic exacerbated -- the government there will need to invest heavily in retirement and healthcare-related industries.
Further, Waterdrop is as much a technology firm as it is an insurance and medical solutions provider. Leveraging its data-driven protocols, Waterdrop can provide more personalized and effective care, while also mitigating issues such as fraudulent medical claims.
However, the company may face some backlash as it fades attention from its charity platform and focuses more heavily on its commercial insurance service. Plus, Waterdrop faces intense competition in this arena, with heavyweights like Alibaba (NYSE: BABA) eyeballing the commercial insurance brokerage industry.
How to Buy Waterdrop (WDH) Stock
If you know how to buy stocks, you already know what to do. If you don’t, just follow these basic steps.
- Pick a brokerage.
Several years ago, picking a brokerage was a rather difficult task because it had financial consequences. Platforms varied widely in terms of net cost to the investor. Thankfully, the advent of connectivity technologies and free-to-use mobile investment apps changed the paradigm. Now, most brokerages feature standardized incentives to stay competitive, such as commission-free trading.
This enables you to focus on your needs and preferences. For instance, those with hectic schedules may opt for a mobile app, which can be surprisingly capable. But if you intend to develop your investing acumen, you should choose a much more comprehensive platform. - Decide how many shares you want.
Deciding your share count is crucial because it determines your risk-reward profile for a particular holding. Obviously, if you own more shares, you accrue greater profits if the target stock moves higher. Conversely, the opposite is true. More ownership equates to more pain if the stock decreases in value. Only make larger bets on your highest-conviction ideas.
Also, make your determination through a well-reasoned process. Certainly, you want to avoid making this decision while trading because emotionally driven decisions tend to be the worst ones. - Choose your order type.
Order types allow you to navigate how you want to actualize your market transactions. You should also note these important concepts.
• Bid: The bid is the highest price a buyer will offer for a stock. It is always lower than the ask.
• Ask: In contrast, the ask is the lowest price that a seller will take. It is always higher than the bid.
• Spread: The spread is the difference between the bid and ask price. It also indicates liquidity and risk. Narrower spreads indicate higher liquidity levels and therefore, lower risk because you can usually find a buyer at any given time. Wider spreads suggest lower liquidity and higher risk because of the lack of participants (buyers).
• Limit order: Deploy a limit order to buy stock at a specific price. Keep in mind there’s no guarantee that the stock will reach your specified price.
• Market order: To buy shares at the going rate, use a market order. The terms are least favorable to you -- buy orders on the ask, sell orders on the bid.
• Stop-loss order: As a protective function, stop-loss orders exit you out of your holdings at either a predetermined price or failing that, the next available price. Failure to execute at the predetermined price can occur during a gap-down session, where the opening price is lower than the prior day’s close.
• Stop-limit order: In contrast, stop-limit orders exit you only at a predetermined price, which offers maximum transparency. But continued losses following a gap-down session means that you would have been better off placing a stop-loss order. - Execute your trade.
To execute a market order, take these steps:
1. Select action type (buy or sell).
2. Enter the shares you want to acquire (or sell).
3. Hit the buy (or sell) button.
You follow the same procedure for limit orders. The exception is that you must enter your desired execution price.
Best Online Stock Brokers
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A Burgeoning Opportunity That Attracts Competition
Thanks to major institutional support, Waterdrop is one of the most highly anticipated IPOs. Its core business of providing healthcare products and services to Chinese consumers is incredibly relevant, especially because of China’s aging demographics.
At the same time, the WDH IPO has significant risks due to competition from Chinese blue-chip firms. Certainly, this dynamic speaks to the opportunity Waterdrop has but it won’t be an easy ride.
About Joshua Enomoto
His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.