Wise (LSE:WISE) shares hit the London Stock Exchange almost two weeks ago with a direct listing. The Wise share price hit a high of 1,030p on the second day of trading but has declined to 950p since. That’s still a decent increase on the opening price of 890p. Indeed if I consider market capitalisation, Wise has grown from £9.8bn on the day it started trading to £13.2bn today.
The Wise listing has been successful, and early investors have done well. But I would like to know how the Wise share price might perform in the future. Perhaps today’s financial update might shed some light on the question.
An update from fintech firm Wise
Wise released a trading statement today. It covered the first quarter of the 2022 fiscal year. I believe the results will be good for the Wise share price, at least in the short term. Revenue came in at £123.5m for the quarter. That is 5.6% higher than the last quarter of 2021 and 43.1% higher than the first quarter of 2021. Cross-border transaction volumes have also increased, as have personal and business customers by 3% and 9%, respectively, quarter over quarter. Wise launched in India in the first quarter of the fiscal year 2022. All customers benefitted from 38% of transactions occurring instantly, the same as the last quarter of the prior fiscal year.
Wise defines the take rate as revenues divided by cross-border transaction volume, and it fell from 0.81% to 0.75% year over year. Wise gets its revenues from fees on transactions. Part of the decline can be explained by higher-priced transactions falling back to long-term average levels. But also, Wise was founded on the principle of improving transparency and reducing costs for international money transfers. Wise reduced pricing from 0.69% to 0.67% in the first quarter of the 2022 fiscal year in keeping with that mission.
The Wise share price is up 0.4% today. This does count as a positive reaction to the trading statement, although it is somewhat muted. That might be due to the general concerns around global economic growth at the moment. But, I would be getting worried about long-term revenue growth rates, especially considering the rich pricing of Wise shares.
The Wise share price
In my last article on Wise, I found that the company grew its annual revenues by 39% from 2020 to 2021. Although this was lower than the 2019 to 2020 revenue growth of 70%, it’s still brisk considering the company is a decade old. But, if I assume the 5.6% quarter on quarter revenue growth holds for the rest of the year, forecasted revenues for Wise will be £537m in the 2022 fiscal year. That would be a 27.6% growth in annual revenues, which is lower than the previous two years.
Wise has about 1.39bn shares outstanding. Assuming that count, Wise will have 30.3p in revenue per share for 2022. Assuming a net income margin of 6% (the average of the last three financial years), I can forecast earnings per share to be 2.33p for 2022. That means Wise shares are trading at 25 times revenues and 409 times earnings. That’s pricy for a company with slowing revenue growth. Revenue growth could pick up with the Indian expansion. However, I still want to watch the Wise share price to see how this plays out. I think it could go either way, and for now, I am not a buyer.
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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.