Will mergers and acquisitions to achieve scale expansion be the antidote for Shuidi?
A few days ago, Shuidi Company announced that it will make a strategic investment in Shenzhen Cunzhenqiushi Technology Co., Ltd. ("Shenlanbao"), which will be completed in stages. The first stage will account for 56% of the shares.
Deep Blue Insurance is an Internet insurance service company that provides insurance knowledge popularization, popular product evaluation, 1v1 insurance planning, policy management and other services based on WeChat official account and small programs. Shuidi plans to further enrich Shuidi’s insurance business service scenarios through investment, and enhance the content capabilities of Shuidi’s security channels.
From the performance point of view, this move of Shuidi is related to the growth bottleneck faced by its insurance business.
In the first quarter of 2023, Waterdrop has achieved profit for five consecutive quarters, but the declining revenue and halved net profit are also warnings, and the road ahead is difficult. According to the financial report, Waterdrop’s Q1 revenue was 606.2 million yuan, a year-on-year decrease of 6.6%; net profit was 49.7 million yuan, a year-on-year decrease of 52.67%.
Obviously, Waterdrop, which is profitable again, faces a bigger problem than losses: the poor performance of core indicators proves that the basic market of Waterdrop has been shaken.
First, the insurance industry is "changing track", from high growth to high-quality development. In the past ten years, with the growth of total premiums, the growth rate of the insurance industry has been slightly weak, and the difficulty of marketing and expansion has become more difficult.
Source: Zhongnan University of Economics and Law "Insurance Industry: 2023 China Insurance Development Report"
Second, the business model of Internet insurance is facing challenges. As traditional insurance companies speed up their digital transformation and form their own online marketing networks, Internet insurance companies’ previously commendable advantages such as insurance claim settlement efficiency and information disclosure and transparency are no longer prominent, and customer service capabilities are insufficient and value-added service capabilities are weak. Defects such as high client-side dependence gradually emerged.
With the superposition of the two, Internet insurance technology companies are facing unprecedented challenges. Under such circumstances, what is the way forward for Shuidi, whose insurance-related business income accounts for nearly 90% of its revenue?
1. "Shorting clothes and dieting" is no longer a good prescription
The profitability of Waterdrop is inseparable from the words "cost reduction and efficiency increase".
Starting from the third quarter of 2021, Waterdrop began to fully control costs, and finally achieved profitability for the whole of last year. And the key lies in the marketing expenses that have been cut off by big money. In 2022, Waterdrop's operating costs and expenses will drop by 54.2% year-on-year, of which sales and marketing expenses will drop from 3.105 billion yuan in 2021 to 624 million yuan.
Costs are under control and profitability is an inevitable event. The problem is that no matter how you "cut", the cost has a lower limit. When the expenditure cannot be reduced, the momentum of profit growth will end.
After entering 2023, Waterdrop began to face this problem. In the first quarter of 2023, Waterdrop's operating costs and expenses increased by 12.0% year-on-year, of which sales and marketing expenses increased by 25.8%. The main reason is that the marketing expenses of third-party traffic channels increased by RMB 29.4 million.
And this just reveals the flaw in Waterdrop's business model - the source of traffic is unstable.
In the past, the traffic of Shuidibao mainly relied on the user conversion of Shuidi Mutual Aid and Shuidi Chou, by recommending relevant insurance products in the process of fundraising or mutual assistance. However, as Shuidi Mutual Aid ceased operations, Shuidibao’s public welfare traffic gave way to commercial realization, and Shuidibao’s traffic acquisition lost its autonomy and became more and more dependent on third-party traffic channels.
As we all know, with the disappearance of the Internet demographic dividend, the cost of traffic acquisition is getting more and more expensive. The profit that was cut in half warns that the water drop must seek change.
At the same time, the declining revenue also reveals two difficulties facing Shuidi: increasing competitive pressure and an unstable profit model.
On the one hand, as a third-party insurance platform, Waterdibao also faces competition and cooperation to varying degrees from other Internet giants and traditional insurance companies. For example, Zhongan Insurance, Tencent’s Weibao, Ali’s Ant Insurance, etc. These competitors have strong technical capabilities, brand influence and user base. Although some companies are still customers of Waterdibao, they will inevitably become challenges for Waterdibao in its upward growth.
On the other hand, Shuidi currently mainly relies on Shuidibao’s income to support its performance, but the prospect of its profit model is not clear. Waterdrop’s income mainly comes from agency commissions, technical service fees and other service fees. However, as the growth rate of the insurance industry slows down, the future growth space of these revenues is gradually limited.
In fact, the dilemma has already appeared. In the first quarter of 2023, Shuidi Insurance’s related income was RMB 536.3 million, a year-on-year decrease of 14.6% from RMB 628.2 million in the first quarter of 2022.
"Throttling expenditure" is no longer a good recipe for performance growth. Coupled with the challenges faced by the main business, it is imminent for Waterdrop to find a new growth direction. The problem is, "open source" is not an easy thing to do either.
2. Xiongguan Road is as real as iron
Whether it is digging deep into the incremental growth in the insurance field or opening up a new growth curve, Shuidi cannot do what it wants.
First of all, looking at the extended cycle, it can be seen more clearly that the insurance industry is already facing an obvious growth "trap", and it may not be a good medicine to expand the scale solely through mergers and acquisitions.
Since my country's premium income surpassed Japan to rank second in the world in 2017, my country's overall premium income has occupied the second largest premium market share in the world for five consecutive years, second only to the United States. However, due to the slowdown in population growth, coupled with factors such as culture and consumption habits that are different from those in Europe and the United States, it is indeed difficult for my country's insurance premium income to continue to rise.
On the one hand, economic growth and insurance premium income continue to increase, but the population growth rate is slowing down. The overall increase in my country's insurance premium income depends on per capita insurance premium income. Taking 2017 as the inflection point, the growth rate of China's per capita insurance premium income has slowed down significantly.
Source: Zhongnan University of Economics and Law "Insurance Industry: 2023 China Insurance Development Report"
On the other hand, unlike Americans who pay equal attention to life insurance and property insurance, China's insurance industry focuses on life insurance, and residents are more willing to hold fixed assets or savings in terms of property. According to the "Insurance Industry: 2023 China Insurance Development Report" (hereinafter referred to as the "Report") by Zhongnan University of Economics and Law, in 2022, property insurance premiums in the United States will account for 43.38% of the total, while China will only account for 27%.
On this basis, the growth rate of life insurance, which occupies the absolute bulk of the premium income of the domestic insurance industry, has dropped to a low level.
Source: Zhongnan University of Economics and Law "Insurance Industry: 2023 China Insurance Development Report"
Shuidibao, a subsidiary of Shuidi, sells insurance products mainly in life and health insurance. Therefore, the decline in its performance is not difficult to understand-all major varieties of life insurance are showing a downward trend. In the case of a bad environment, the acquisition of a third-party platform in the insurance field may not necessarily increase the performance of Waterdrop.
Source: Zhongnan University of Economics and Law "Insurance Industry: 2023 China Insurance Development Report"
Secondly, Shuidibao itself failed to balance scale and value. It lacked substantial business breakthroughs and did not build a good barrier to competition.
Waterdrop highlights the number of insurance products in its financial report, but the expanded product range does not represent an increase in competitiveness.
We have learned that the number of insurance products of Waterdibao continues to grow, from 408 in the first quarter of 2022 to 876 in the first quarter of 2023. It seems that the business scale continues to expand. However, third-party insurance platform cooperation products, The number of insurance companies basically doesn't mean much. Go to the insurance company to sign an agreement and do a data docking, and the number will be there.
The key lies in whether it can be sold and how much it can be sold. The really meaningful data are revenue, new premiums (non-renewal), etc. However, Shuidi’s revenue data is declining, which proves that the quality of its business development is not high.
In addition, in the face of fierce competition from traditional insurance companies and Internet giants, Internet insurance technology companies including Shuidibao and Qingyibao lack sufficient moats.
Traditional insurance companies may not have the pure online experience as Internet insurance companies, but they have the advantages of offline channels. Agents can serve customers face-to-face and explore customers’ deep needs; while Internet giants have advantages in terms of technical strength, traffic channels and financial strength. , can reach target customer groups more extensively, and continue to broaden the market.
In the face of these competitors, expanding the channel and scale through the acquisition of Deep Blue Insurance does not seem to be enough to widen the moat of Waterdrop.
In the future, as traditional insurance companies actively introduce Internet product thinking, reduce the processing links and time-consuming processes of insurance application, underwriting, and claims settlement, and further improve customer experience, and the insurance platforms of major Internet companies rely on their own data management and utilization capabilities, To develop a more comprehensive and diverse operating model, independent third-party insurance platforms will face greater challenges.
Finally, regardless of the insurance business, Waterdrop's "second growth curve" still needs enough time to cultivate, and it is not enough to support performance right now.
"Yifan Medicine" and "Shuidi Health", these products rely on Shuidi's goal of opening up the "medical insurance" ecological chain, but judging from the financial report, the current income of these products is only "other". In the first quarter of 2023, the revenue of Waterdrop clinical trial solutions will be RMB 22.8 million, accounting for only 3.76%.
Obviously, Shuidi’s diversification has just started, and the story about the closed loop of “medical insurance” has not yet made investors “pay”. Since its listing, Waterdrop’s stock price has fallen by 80%, and its stock price will continue to drop after entering 2023.
Source: Snowball
From the current point of view, it is not yet known where the "bottom" of Waterdrop's stock price is, at least not a war investment news can save it. The most urgent task for Waterdrop is to sort out the development direction of the industry and find out the way forward.
3. Can the "AI" pie be realized?
How to replace the main insurance business with a more powerful "engine"?
In the latest financial report, Shuidi said that the company is further iteratively upgrading technologies such as artificial intelligence dialogue robots, and training in combination with business scenarios to significantly improve the consulting efficiency of robots. At the same time, Shuidi tries to optimize the algorithm capabilities to improve the refined operation of traffic.
Apparently, Waterdrop plans to put its hope of breaking through the bottleneck of its business on digital and intelligent technologies, which is also in line with the development trend of the insurance industry.
From the perspective of development context, now is a critical period for the comprehensive transformation and upgrading of the insurance industry. According to the "Report", the insurance industry can be divided into three stages according to the development trend of technology:
The first stage is the traditional Internet era. With the continuous upgrading of the Internet, online channels have gradually become the focus of insurance marketing.
The second stage is digitization + insurance. This is exactly the current stage of the insurance industry. Various insurance companies are actively using digital technology insurance technology to change the traditional development model of the industry and impact the original Internet insurance company market.
The third stage is intelligence + insurance. Looking forward to the future, emerging technologies such as artificial intelligence and blockchain are increasingly integrated with insurance, and insurance technology will usher in a new ecology.
Now is the critical period from the second stage to the third stage. Leading insurance companies have begun to emphasize the "technical" attribute, accelerating the exploration of cutting-edge technologies such as IoT and AI, including ChatGPT technology, and initiating changes in industry efficiency.
Waterdrop is also one of the companies actively exploring cutting-edge technologies. At the beginning of the year, Huang Mingxing, head of AI at Waterdrop, revealed that Waterdrop has been testing ChatGPT-like applications internally, mainly in the fields of insurance marketing and services.
However, the "tickets" for this round of technological change are not easy to get. Cutting-edge technologies often have high thresholds. The top players of ChatGPT technology are still dominated by domestic and foreign technology giants.
Waterdrop, which is simultaneously marching into multiple fields such as online consultation, critical illness green notification, overseas medical treatment, emergency rescue, critical illness care, cancer screening, genetic testing, etc., can invest how much cost and energy to study AI technology, and its artificial intelligence dialogue It is still unknown how much improvement robots can bring to insurance-related business service capabilities.
The pursuit of higher-quality innovation and growth requires the determination to "start from scratch now" and the perseverance to "return strong after thousands of blows". Looking forward to the future, in terms of business development, Shuidi needs to be more focused and focused in order to write more moving stories.
Article source: US Stock Research Institute