I think we can conclude that last week’s market debut from money transfer firm Wise (LSE: WISE) was a success. Despite wider market concerns about Covid-19 and inflation, shares breached the 1,000p mark on Friday — that’s already 20% up on its opening price of 800p.
So, is this a fintech flash in the pan? I don’t think so. Here’s why.
1. It’s profitable
One thing I like about Wise is that it’s actually making profits. In fact, it’s been doing so for the last four years. Last year, pre-tax profits doubled to £41m.
As a potential investor, this is important to me. At a time when many tech-related stocks are pushing frothy valuations despite being a long way from making real money, Wise is bucking the trend. Contrast this with tech peer Deliveroo. The takeaway delivery firm is reluctant to even forecast when it expects to make a profit.
Wise’s already-profitable business model could also provide some protection if global markets come off the boil. I’m not so sure Deliveroo offers the same protection.
2. No cash raise
The direct listing of Wise shares is another attraction. The first tech stock to do so on the London Stock Exchange, this means it’s not looking for a fresh injection of cash from investors. Instead, it’s merely selling existing shares on the market. There was no need for investment banks to underwrite this (and charge high fees for doing so).
This move makes Wise similar to the US listing of music streaming service Spotify in 2018. Although operating in very different sectors, it’s worth noting that the latter’s share price is up over 70% since then.
The fact that Wise isn’t raising cash also reminds me of a quote from star UK fund manager Terry Smith: “Call us old-fashioned but when we’ve bought shares in a company, we like them to send us money after that, not the other way around. We think that’s how this relationship should work.”
3. Huge growth potential
Fintech is all the rage right now and it’s not hard to see why. Investment in this space hit $44bn last year.
Sure, there are risks. One that immediately jumps out at me is the threat of cybercriminal attacks. Ongoing regulation could also prove a headwind.
Nevertheless, let’s not overlook the fact that this is a huge market and Wise has the potential to continue disrupting a part of the economy which has hitherto been dominated by big banks and the likes of Western Union. According to the company, its customers already send £5bn across borders every month.
So, will I be buying?
Not yet. Wise shares could climb higher but I’d be inclined to build a stake slowly. As Dr Martens has shown, traders can be quick to sell after the initial hype dies down. No share price rises in a straight line, regardless of its growth potential.
The high number of companies coming to market right now also make me wary. This is nothing against Wise specifically, but it does imply that many founders now think they’ll get an optimum price for their shares. This could indicate markets are peaking. There’s something to be said for zigging when the majority are zagging.
Over the long term, Wise shares could prove a very wise investment. For now, I’ll watch from the sidelines.
