Goldman Sachs Maintains 'Buy' Rating for Waterdrop with Price Target of US$1.80

Rhea-AI Summary

Goldman Sachs has maintained a 'Buy' rating for Waterdrop (WDH) with a 12-month price target of US$1.80 per ADS. The company reported strong financial results for 2024, with net profit reaching 368 million yuan (US$51 million), up 119.8% year-over-year.

The company's Q4 2024 first-year premium (FYP) for insurance business grew 24.5% to 1.9 billion yuan (US$263 million). WDH announced a cash dividend of US$0.02 per ADS for Q4, totaling US$0.04 for FY2024. The company has repurchased 52.1 million ADSs worth US$100 million since September 2021.

As an early adopter of AI LLMs, Waterdrop invests 300 million yuan annually in R&D and has over 100 technology patents. The company projects 20% revenue growth for 2025, though increased business expansion investments may impact profit margins.

Positive

• Net profit increased 119.8% YoY to 368M yuan (US$51M)
• Insurance business FYP grew 24.5% YoY to 1.9B yuan
• Consistent dividend payment of US$0.04 per ADS
• Significant share buyback program worth US$100M completed
• Projected 20% revenue growth for 2025
• Non-insurance segment losses narrowing

Negative

• Expected increase in sales and marketing expenses may pressure profit margins in 2025

Insights

Financial Analyst

Goldman Sachs' maintained "Buy" rating and $1.80 price target for Waterdrop (WDH) represents a potential 29.5% upside from the current $1.39 price, supported by impressive financial results. The company's 368 million yuan ($51 million) net profit for 2024 reflects remarkable 119.8% year-over-year growth, demonstrating significant operational improvements.

The insurance segment shows strong momentum with Q4 first-year premiums reaching 1.9 billion yuan ($263 million), up 24.5% YoY, driven by enhanced acquisition efficiency in short-term products. Simultaneously, the non-insurance segment continues to reduce losses, contributing to overall profitability improvement.

Shareholder returns remain a priority, with the company declaring a $0.02 quarterly dividend, bringing the annual distribution to $0.04 per ADS. This represents a dividend yield of approximately 2.9% at current prices. The commitment to semi-annual dividends going forward signals management's confidence in sustainable cash generation.

WDH's substantial share repurchase program has already returned $100 million to shareholders through buying back 52.1 million ADSs since September 2021, representing nearly 19% of the company's current market capitalization. This significant capital return demonstrates both financial strength and shareholder-friendly capital allocation.

Technology Strategist

Waterdrop's substantial investment of 300 million yuan ($42 million) annually in R&D demonstrates a strategic commitment to technology-driven growth. The company has built a significant intellectual property portfolio with over 100 patents, positioning itself as a technology leader in the insurtech space.

As an early adopter of AI large language models (LLMs) in the insurance sector, Waterdrop has created a comprehensive LLM application system covering all insurance scenarios. The recent integration of the DeepSeek model represents a significant advancement in their AI capabilities, enhancing service delivery across market segments.

Their dual-focused AI strategy is particularly noteworthy: 1) The AI Insurance Assistant empowers service personnel with enhanced capabilities, and 2) The AI Insurance Expert provides personalized consultation directly to users. The Bao Xiaohui AI assistant exemplifies these innovations, offering 24/7 real-time support while reducing issue escalation and improving service efficiency by 50%.

For 2025, the company projects 20% revenue growth but expects increased business expansion investments. Goldman Sachs appropriately identifies this as potentially pressuring profit margins, though this may be partially offset by improving performance in non-insurance segments. This balanced approach to growth investment while maintaining profitability appears strategically sound for long-term value creation.

BEIJING, March 19, 2025 /PRNewswire/ -- Following the release of Waterdrop Inc.'s (WDH) fourth-quarter and full-year 2024 financial results, Goldman Sachs' latest research report maintains a "Buy" rating for Waterdrop and sets a 12-month price target of US$1.80 per ADS.

According to Goldman Sachs' report, Waterdrop achieved a higher-than-expected net profit attributable to shareholders of 368 million yuan (approx. US$51 million) for the full year of 2024, representing a year-on-year increase of 119.8%. In the fourth quarter of 2024, the first-year premium (FYP) for the insurance business reached approximately 1.9 billion yuan (approx. US$263 million), up 24.5% year-on-year, primarily driven by improved customer acquisition efficiency in short-term insurance products. Additionally, losses in the non-insurance segment continued to narrow during the quarter.

In its fourth-quarter and full-year 2024 earnings report, Waterdrop announced a cash dividend of US$ 0.02 per ADS, bringing the total dividend for fiscal year 2024 to US$ 0.04 per ADS (consistent with 2023). Given the stability of its operations, the company plans to distribute cash dividends on a semi-annual basis going forward.

Regarding share buyback, since the announcement of its share buyback program in September 2021, Waterdrop had repurchased approximately 52.1 million ADSs (American Depositary Shares) from the open market as of the end of February 2025, totaling approximately US$100 million.

As one of the first companies in the industry to adopt AI LLMs, Waterdrop has consistently driven innovation through technology since its inception, investing approximately 300 million yuan (approx. US$42 million) annually in research and development. The company has accumulated over 100 technology patents and built a comprehensive LLM application system covering all insurance scenarios. Recently, Waterdrop introduced the DeepSeek model, significantly enhancing its AI-driven service capabilities in market segments.

Waterdrop's application of large models focuses on two main areas: launching AI Insurance Assistant to empower insurance service personnel; and upgrading the AI Insurance Expert to provide users with insurance consultation and planning services. For example, the company has releases Bao Xiaohui, an AI Service Assistant which is available 24/7 to provide responses in real time, reducing issue escalation and improving service efficiency by some 50%.

Looking ahead to fiscal 2025, Waterdrop foresees revenue growth of approximately 20%, with increased investment in business expansion. Goldman Sachs analysts believe this may lead to higher sales and marketing expenses, potentially putting downward pressure on the company's profit margins. However, the reduction in losses from non-insurance segments could partially offset this pressure.

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SOURCE Waterdrop Inc.

FAQ

What is Goldman Sachs' price target for Waterdrop (WDH) stock in 2025?

Goldman Sachs maintains a 'Buy' rating with a 12-month price target of US$1.80 per ADS.

How much dividend will WDH shareholders receive for fiscal year 2024?

Waterdrop will pay total dividends of US$0.04 per ADS for fiscal year 2024, distributed semi-annually.

What is Waterdrop's share buyback progress as of February 2025?

WDH has repurchased approximately 52.1 million ADSs from the open market, totaling US$100 million.

What is Waterdrop's projected revenue growth for fiscal 2025?

Waterdrop forecasts approximately 20% revenue growth for fiscal 2025.

How much did Waterdrop's insurance premium (FYP) grow in Q4 2024?

WDH's first-year premium reached 1.9 billion yuan (US$263 million), up 24.5% year-over-year.