Wise (formerly TransferWise) IPO: Everything You Need to Know
Wise stock debuted on the London Stock Exchange on 7 July 2021 in a highly anticipated direct listing. But who are Wise? How have they performed? And what can you expect from this new listing? In this article, we will answer all these questions and more!
What Is Wise (TransferWise)?
Wise was founded in 2011 by Estonian businessmen Kristo Käärmann and Taavet Hinrikus whilst both were living in London.
At the time, Hinrikus, who was Skype’s first employee, received his salary in euros and Käärmann, who worked for Deloitte, was paid in British pounds but had overseas commitments in his native Estonia. Both men, therefore, were obligated to regularly transfer money via their banks into foreign currency and both men, therefore, were familiar with the high fees and unattractive exchange rates which this process tends to entail.
Thus TransferWise was created, as a more affordable option for transferring money abroad. In its first year of operation, TransferWise processed over €10 million worth of transactions as well as attracting an investment from Max Levchin – co-founder of Paypal.
In February 2021, the company rebranded as Wise – a reflection that there is more to the start-up than just international transfers. Their “borderless” account allows users to hold their money in over 50 different currencies and spend it internationally with a Wise debit card.
Today, Wise has 10 million customers worldwide and sends over £5 billion overseas every month.
When Is the TransferWise IPO?
Although Wise stock was initially rumoured to be going public via an Initial Public Offering (IPO), the company took the decision to go public on the London Stock Exchange (LSE) via a direct listing – following in the footsteps of other tech stocks such as Spotify, Slack and, more recently, Coinbase.
Unlike a more traditional IPO, where investment banks – acting as underwriters to the stock – sell the company’s shares to an exclusive pool of hedge funds an investors before the shares are made public, a Direct Public Offering (DPO) essentially skips this step and lists their existing shares directly on the stock exchange.
Opting for a DPO can save a company tens of millions in expensive fees paid to banks, which usually equate to around 7% of the total proceeds raised from the IPO. Given that Wise was created with the goal of minimising costly bank fees for consumers, perhaps it should not come as a surprise that they have opted for a listing method which minimises their own bank fees!
However, by undertaking a DPO, the company will not be issuing new shares, only facilitating the sale of existing ones, meaning that they will not be raising any new capital for the company.
Wise stock was admitted into the London Stock Exchange on 7 July 2021, trading at an initial price of around £8 per share. This share price gave the company a market capitalisation of £8 billion, making it the most valuable technology company to join the London market!
Company Performance
Wise’s revenue is generated by the fees incurred by their customers for transferring money. According to their Registration Document with the London Stock Exchange, in the year ending 31 March 2021, Wise’s total revenue was £421 million. This was up from £302.6 million the previous year (i.e. growth of 39%) and £177.9 million the year before that (i.e. growth of 70%).
Unsurprisingly, considering how the company’s revenue is generated, total volume of transactions handled by Wise increased at a similar rate over the same timeframe, with figures of £54.4 billion, £41.7 billion and £27.1 billion respectively.
Some simple division shows that Wise was able to convert 0.65% of transfers into revenues in the year ending March 2019 and to grow this to 0.72% in the year ending March 2020 and to 0.77% in the latest financial year. This growth indicates that, rather than succumbing to increased competition, the company seems to be strengthening its position in the market.
As far as profitability goes, Wise have been a profitable company since 2017. In the year ending 31 March 2021, Wise recorded a net profit of £30.9 million, more than double the previous year’s £15 million.
Is Wise Stock a Wise Investment?
The growth of Wise since its foundation in 2011 is certainly impressive, particularly its increases in revenue and net profit over the last three years.
Also impressive is its large customer base of 10 million, although closer inspection of Wise’s Registration Document with the LSE tells us that only 6 million of these are “active customers”. Either way, it is a substantial number of customers given the company’s relatively young age. Now that Wise has started to sell other financial products, this customer base should be a good platform for further future growth. Moreover, their customers hail from over 110 countries, giving Wise a truly international presence.
Wise already holds a significant portion of their market, their Registration document states that: “Personal customers trust us with moving approximately £1 in every £40 of the £2 trillion personal cross-border volumes processed in 2020”. Considering their performance to date, Wise find themselves well positioned to move forward and capture more of this large market.
The rebrand – which, perhaps not coincidentally, took place just months before the company was due to go public – serves as an indication that Wise is keen to grow its reputation beyond remittances.
In 2020, Wise secured a license from the FCA to offer investment products in the UK and their Registration Document tells us that in the future, Wise customers will be able to invest in “simple, affordable funds from reputable providers”.
The Investors and Funds Behind Wise
Co-founders Käärmann and Hinrikus respectively hold 19.8% and 11.5% of Wise shares outstanding.
Other notable stakeholders in Wise, who hold over 3% of the issued share capital are detailed in the table below:
Source: Wise Registration Document - June 2021
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