British fintech firm Wise (LSE: WISE) made a successful direct listing on 7 July 2021. The Wise share price rose 10% on opening day to close at 880p. The shares continued their good run and are currently up around 20% from the opening price.
Here, I review the company to understand the pros and cons of investing in this company.
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Wise company’s overview
The company was started by two Estonian friends, Kristo Käärmann and Taavet Hinrikus, in 2011. Frustrated by the high fees charged to transfer money overseas, they found a way to transfer money cheaply. Earlier this year, the company’s name was changed from TransferWise to Wise, primarily due to the extended services of the company.
The company used a direct listing instead of the usual initial public offering (IPO). A direct listing is cheaper due to the absence of intermediaries. This type of listing is more suitable for companies that are already very popular. In fact, this was the case of the Wise shares. Another key differentiator is that only the existing investors sell shares and no new shares are issued in this method.
The company has two classes of shareholders. The company’s early investors include PayPal co-founder Peter Theil. The Class B shares will have an extra nine votes per share. They will not be listed and will cease to exist after five years of the listing of shares.
The company has solid revenue growth. Revenue grew at a compound annual growth rate of 54% from the fiscal year 2019 to 2021. In the fiscal year 2021, revenue grew 39% to £421m. It also has a geographically diversified revenue base. Europe, excluding the UK, constituted 33% of 2021 revenue, the UK (23%), Asia-pacific (21%), North America (17%), and the rest of the world (6%).
Another reason why I like Wise shares is that the company is profitable. Its net profits grew from £10.3m in 2019 to £30.9m in 2021. The free cash flow was £103.9m. The company has been able to grow its active customers rapidly. It grew from 3.3m in 2019 to 6.0m in the fiscal year 2021.
Wise shares – risks to consider
The company has a dual-class shareholding. It gives the founders and early investors the majority of the voting rights. It is good to have more control over the functioning of the company. On the other hand, retail investors will not be able to influence the company’s decisions.
Wise will face stiff competition from traditional banks and digital banks. Its close competitor, Revolut is also popular with similar services and is growing rapidly, which is a concern.
Wise shares are currently trading at a price-to-sales ratio of 31. In my opinion, the valuation is a bit high for me to consider it as a value buy.
Taking all things into consideration. I like the company’s products and its strong revenue growth. I will keep the stock on my watchlist and wait for a better entry point to add it to my portfolio.