Last month, financial technology (FinTech) company Wise (LSE: WISE) listed directly on the London Stock Exchange.
And on 20 July, the directors released the first-quarter trading update. Within it, the firm’s mission statement is clear: “To make moving and managing money across borders faster, easier, cheaper and more transparent for everyone, everywhere.”
Why Wise shares tempt me
The idea of building a business by delivering a service better, faster, cheaper and easier reminds me of Sir Richard Branson’s approach. The Virgin boss talked a lot about that in his autobiography, Losing My Virginity.
Meanwhile, Wise’s entrepreneurial co-founder and chief executive is Kristo Kärmann. He said in last month’s report the company’s financials were in line with the directors’ expectations. But the figures are impressive. For example, revenue grew by 43% year-on-year. Although the quarter-on-quarter gain was a modest 6%.
Nevertheless, Kärmann said he was pleased that, in the first quarter, Wise managed to reduce pricing by 2 basis points (bps). And that meant lower prices for 19 currencies. But he also provided a tantalising glimpse into the future potential of the Wise business. He said the next phase of the company’s growth will be driven by addressing “the £150 billion the world continues to pay in hidden fees each year” when transferring money between currencies and countries.
It’s possible that Wise could go on to disrupt the money transfer industry and post consistent and large-scale growth in revenue for years to come. Although nothing is certain and it’s also possible for the company to fall short of its ambitions. But Kärmann said the firm’s coverage “took an important step forward” when the service launched in India during the period.
And in another interesting move, the company made a part of its service more convenient for customers. More than 1m customers have opted to receive money with just their email addresses.
Building a new infrastructure
Kärmann reckons the firm’s platform proposition is still in early development. However, the company recently announced partnerships with Google Pay, Shinhan Bank, Temenos and Thought Machine. And those deals will allow many more people and businesses “to access Wise’s cheap, fast and transparent international money transfers.”
Looking ahead, Kärmann said he expects revenue to grow by a percentage in the mid-20s during the current trading year to March 2022. Meanwhile, City analysts expect earnings to grow by around 26% that year.
And with the share price near 978p, as I write, the forward-looking price-to-earnings multiple is around 125. That, of course, looks ridiculously expensive when considered in isolation. But I’m bearing in mind that the company “spent the last decade” developing its infrastructure to replace the world’s “old and outdated system.” And the Wise system is continuing to evolve.
Straightforward value-seeking investors probably wouldn’t give this stock a second glance, and there are obvious valuation risks. But what if Wise does manage to pull off its mass-market disruption trick? Revenues and profits could escalate rapidly. And we could see the business gain greater traction fast as the world recovers from the pandemic.
I’m tempted to tuck a few Wise shares away now to hold for the long term.