Waterdrop Inc. (WDH) Materially Misrepresented its Revenue Growth and Increased Customer Base in its IPO Documents
Waterdrop Inc. conducted its initial public offering (“IPO”) in May 2021. According to the class action complaint filed on behalf of Waterdrop Inc. shareholders, leading up to the IPO, Waterdrop claimed it was experiencing tremendous revenue growth, stating that its gross revenue increased by over 100% between 2019 and 2020. Further, the documents supporting the IPO stated that Waterdrop had “achieved exponential growth since [its] inception” and was poised to take advantage of a massive market opportunity among under-insured Chinese communities. The IPO documents also stated that Waterdrop’s customer base increased nearly eight-fold between 2018 and 2020.
However, defendants failed to disclose that Waterdrop was the subject of an intense regulatory investigation and pending crackdown by Chinese authorities because of a variety of market abuses perpetrated by the Company, which artificially inflated Waterdrop’s short-term financial results in the lead up to the IPO. Specifically, Waterdrop operated insurance platforms without proper governmental authorizations, mispriced risks for customers, and illicitly used client information. Further, Waterdrop had suffered rapidly accelerating operating losses in the first quarter of 2021, completed weeks before the IPO.
On June 17, 2021, Waterdrop announced the Company’s financial results for the quarter ended March 31, 2021, the quarter before the IPO. The Company reported that its operating costs and expenses had ballooned over 75% to RMB1,343.9 million. As a result, the Company suffered an operating loss for the quarter of RMB460.6 million, compared with an operating loss of RMB111.1 million for the same period of 2020 – a more than four-fold increase.
On August 11, 2021, multiple news sources reported that China’s banking and insurance watchdog, the China Banking and Insurance Regulatory Commission, had issued an order directing insurance companies, including Waterdrop, to cease improper marketing and pricing practices rampant in the industry and enhance their user privacy protections. On September 8, 2021, Waterdrop announced its financial results for the quarter ended June 30, 2021, noting that operating losses had continued to accelerate due to a sharp increase in the Company’s costs and operating expenses. On September 13, 2021, Waterdrop ADSs dropped to a low of $3 per share, losing 75% of the value at which it was sold to the investing public.
If you purchased shares of Waterdrop Inc. (WDH) ADSs in or traceable to the Company’s May 21, 2021 IPO, you have until November 15, 2021, to ask the court to appoint you lead plaintiff for the class.
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