Fintech firm Wise (LSE:WISE) is a recent addition to the London Stock Exchange (LSE). Since its direct listing nearly two weeks ago, the Wise share price is up approximately 7% as I write. Should I buy Wise shares for my portfolio? Let’s take a look.
Products and services
Wise offers international money transfer services. Rather than a traditional transfer via a bank or foreign exchange service, Wise offers a quicker and cheaper option. I transfer money abroad often, and these are the types of things I look at when looking to choose a service.
Wise has agreements with payment processors which process these transactions quickly and efficiently at a fraction of the cost. The ability to offer such a service has seen Wise gain more than 10m users to date. I believe these numbers will continue to rise if Wise continues to keep its offering consistent in terms of speed, cost, and service.
IPO and performance
Wise shares listed on the LSE as the largest ever public listing of a UK tech business, with a hefty valuation of £8.75bn at 880p per share. The Wise share price has increased approximately 7% since that listing which means its valuation has now increased further to close to £13.5bn.
Many newer fintech firms are usually unprofitable for some time. They can be seen as a risky investment until profitable. Wise bucks that particular trend. Between March 2020 and 2021, it reported revenue of £421m and an operating income of £44.9m. The good news for potential investors is that Wise’s expenses seem to be fixed right now. This means as it gains new customers, revenue, income, and margin should increase if its business model remains the same.
Should I buy Wise shares?
Wise shares do have risks. Firstly, I am concerned by its rather large valuation at such an early stage in its journey. Although high, it is not uncommon for tech stocks to start out with such a large valuation. Personally, this is a red flag.
Wise’s inability to operate without relationships with payment processors could present problems in the future. In simple terms, they are at the mercy of these partners and any relationship could collapse at any time, which could leave Wise in a dangerous predicament. Furthermore, this dependence on payment processors leaves Wise in a weak negotiating position in my opinion. This could hamper them when negotiating rates and so forth. If a partner relationship soured and customer numbers slowed, Wise shares may cheapen hugely as the share price could fall.
At this time, I would not buy Wise shares. I must admit I am impressed by its offering and its journey to date and will probably try its service to send money abroad as a consumer. But I do have my concerns, so for now, I will keep a keen eye on developments.
Jabran Khan 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.