On Wednesday, Wise (LSE: WISE) came to market on the London Stock Exchange. And in contrast to so many previous IPO flops, it got off to a cracking start. The listing opened at 800p, and ended the day at 880p. And as I write on Thursday morning, The Wise share price is up further, to 902p.
Wise’s start to life as a listed company is a little different to most though. It took the form of a direct listing rather than an IPO. So what’s one of those? A traditional IPO is usually aimed at raising fresh capital, so a company issues new shares. The process is generally underwritten by investment bankers, which increases the costs.
By contrast, in a direct listing, the current owners of the company offer some of their existing shares direct to the public. There’s no underwriting, and no underwriting fees. I think that fits Wise perfectly. Its founders, Kristo Käärmann and Taavet Hinrikus, pioneered a direct method for international currency transfers that eliminated opaque charges levied by traditional middlemen.
Unlike many hopeful companies coming to market, Wise (previously known as Transferwise) is already comfortably profitable. That’s another reason a direct listing makes sense. The company doesn’t need a cash boost to get it onto a sustainable footing. I reckon the approach will have boosted confidence, and contributed to the Wise share price’s gains.
A very big market
As my Motley Fool colleague Harshil Patel has pointed out, Wise has 10 million customers transferring around £5bn every month. It also has its own share ownership programme, OwnWise, to make it easier for customers to invest and get bonus shares.
So it’s a company that tries to make things easier, cheaper and more transparent, for its customers and for its investors. In contrast to the frequently murky obfuscation and hidden charges that characterise much of the finance world, that’s very much in line with The Motley Fool’s ethos.
But on to the big question. Will I buy Wise shares? One thing that makes me hesitate, as Harshil explained, is the company’s dual share structure. It gives the founders’ shares more control, and I don’t like that. No, I prefer a level share structure, in which every share is equal.
Wise share price volatility?
I also wonder how Wise might cope with a financial crisis. I don’t mean anything as big as the banking crash, just a squeeze in the sector will do. Wise’s early years have been relatively calm ones in the financial world, so maybe it hasn’t yet faced the tests that will prove it as a winner?
Saying that, I do see significant growth potential. International currency transfer is a multi-trillion dollar business annually. I don’t know whether the Wise share price valuation makes sense yet though. As with every new entrant to the market, it could take some time to settle, so we could see some early volatility.
Still, I think Wise’s relative maturity does lower the short-term price risk. I won’t buy now, but Wise is definitely on my watch list.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Alan Oscroft 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.