Waterdrop Q2 2026 Earnings: Insurance Growth Drives a 72.8% Revenue Gain

Waterdrop (NYSE: WDH) reported Q2 2026 net operating revenue of RMB1,448.2 million, up 72.8% from RMB838.0 million a year earlier, while diluted EPS attributable to ordinary shareholders was RMB0.03 versus RMB0.04. Insurance-related income powered the expansion, but sharply higher sales and marketing spending limited operating-profit growth and reduced the operating margin; attributable net profit declined 10.3%.

Key Financial Results

Revenue growth substantially outpaced profit growth. Operating profit rose 14.3%, but total operating costs and expenses increased 80.5%, faster than revenue, as the company spent more on third-party traffic acquisition and other marketing services.

Net profit attributable to ordinary shareholders fell to RMB125.8 million. One factor was the change from an income tax benefit of RMB2.9 million in Q2 2025 to an income tax expense of RMB22.3 million this quarter.

Adjusted net profit is a non-GAAP measure that excludes share-based compensation attributable to ordinary shareholders and foreign-exchange gains or losses.

Business and Segment Performance

Insurance remained Waterdrop’s main source of revenue and segment profit. Insurance-related income increased 80.5% to RMB1,333.2 million, representing approximately 92% of consolidated revenue. The company attributed the year-over-year increase mainly to enhanced risk-assessment services and higher first-year premiums generated through its platform.

Technical service income, which is included in insurance-related income, rose to RMB488.0 million from RMB160.9 million. Sequentially, insurance-related income increased 16.4%, primarily because of higher insurance brokerage income.

Crowdfunding service fees declined 5.7%, while the segment’s operating loss widened. Digital clinical trial solution income, reported as a separate business line within Waterdrop’s disclosures, increased 26.8% to RMB35.2 million and rose 45.1% sequentially. During the quarter, the E-Find Platform worked with 255 pharmaceutical companies and contract research organizations and enrolled 1,540 patients.

Marketing-Led Expansion Narrowed Margins as Taxes Weighed on Net Profit

Waterdrop generated about RMB610.3 million of additional revenue compared with Q2 2025, but sales and marketing expenses alone increased by about RMB438.7 million. Those expenses more than tripled to RMB637.5 million, driven mainly by a RMB415.0 million increase in spending on third-party traffic channels and a RMB21.8 million increase in related professional technical-service fees.

Sales and marketing expenses consequently represented approximately 44.0% of revenue, compared with about 23.7% a year earlier. The effect was also visible in the insurance segment: revenue rose 80.5%, but segment operating profit increased only approximately 7.4%. This indicates that the quarter’s customer and premium growth required substantially more acquisition spending.

Below the operating line, profit before income tax and results from the equity-method investee increased to RMB148.8 million from RMB137.4 million. However, the RMB25.1 million year-over-year swing from a tax benefit to a tax expense contributed to the decline in attributable net profit.

Balance Sheet and Capital Allocation

Waterdrop’s cash position—which includes cash and cash equivalents, short-term investments, and long-term debt investments included in long-term investments—was RMB2,652.7 million at June 30, 2026, down approximately 18.4% from RMB3,249.0 million at the end of 2025. Cash and cash equivalents increased to RMB1,049.4 million, but short-term investments and long-term investments declined.

Accounts receivable increased to RMB2,166.2 million from RMB1,260.5 million at year-end, while short-term loans rose to RMB476.3 million from RMB47.0 million. General and administrative expenses also included a RMB33.3 million year-over-year increase in the allowance for credit losses.

After the quarter ended, a wholly owned subsidiary entered into a fully drawn US$40.0 million secured term-loan facility with an independent third-party borrower. The facility carries a 10% annual interest rate, matures 24 months after the respective drawdown dates, and is secured by the borrower’s limited partnership interest in a private investment fund.

The board approved a new share-repurchase authorization of up to US$50 million through September 10, 2027. As of August 31, 2026, Waterdrop had cumulatively repurchased approximately 62.9 million ADSs for US$121.3 million under programs launched since 2021.

The board also approved a cash dividend of US$0.03 per ADS, or US$0.003 per ordinary share, totaling approximately US$10.8 million. The record date is October 9, 2026, with payment expected around November 6, 2026 for ADS holders.

Management Commentary

Management linked insurance growth to refinements in Waterdrop’s AI models and broader product access. New customer acquisitions increased 32.3% sequentially, while long-term premiums rose 33.4%. Premiums facilitated by the AI Medical Insurance Expert increased 25.6% sequentially, and the number of users served by the AI Super Pre-Sales Assistant rose nearly 50%.

Waterdrop also introduced Rongyi Bao, a long-term critical-illness insurance product that requires no health disclosure and provides five-year guaranteed renewability. Management is continuing to apply AI to underwriting assistance, insurance sales and crowdfunding risk controls, while incubating AI-driven initiatives aimed at global markets.

Risks Investors Should Monitor

• Customer-acquisition efficiency: Third-party traffic spending was the main reason sales and marketing expenses rose 220.7%. If this spending does not produce durable premium and revenue growth, operating-margin pressure could persist.
• Receivables and credit exposure: The increase in accounts receivable, higher allowance for credit losses, and the post-quarter US$40.0 million secured facility make collections and credit quality more important to cash preservation.
• Dependence on insurance: Insurance generated approximately 92% of quarterly revenue and all reported segment operating profit. Crowdfunding and Others remained loss-making, limiting diversification of earnings.
• Tax effects on net earnings: The change from a tax benefit to a tax expense was a significant reason attributable net profit declined despite higher operating and pretax profit.

Summary

Waterdrop’s Q2 2026 results were defined by rapid insurance-led revenue expansion but weaker conversion of that growth into profit. Higher third-party traffic spending compressed the operating margin, while a larger tax charge pushed attributable net profit lower. The main issues to monitor are marketing efficiency, receivable and credit exposure, and whether the company can improve the economics of its non-insurance operations.