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Wise: Money Without Borders

Why I'm not avoiding this recent IPO

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The City Letter
Sep 16, 2021

Summary

  • Wise is disrupting the market for consumer and small business foreign exchange transactions.
  • Wise listed in London in July through a direct listing. Its dual share class structure excludes it from the FTSE 100.
  • Guru James Anderson is a big supporter and Baillie Gifford owns nearly 5% of the stock.
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Wise PLC (

LSE:WISE, Financial) is a very unusual company for me to own. First, I almost never invest in recent initial public offerings as there is a large body of research, from Professor Jay Ritter to Goldman Sachs (GS) showing IPO stocks underperform in the first few years after joining an exchange. Second, I almost never invest in U.K. stocks that don’t have a premium listing. The London Stock Exchange has a premium category and a standard category on the main market; the alternative investment market, or AIM, is the junior market. Wise, which is based in London’s Silicon Roundabout area, decided to go for a standard listing due to its non-compliance of corporate governance criteria for the premium segment.

Interestingly, Wise opted for a direct listing, which skips the book building process of a traditional IPO, as no new capital was raised. But this is in keeping with its nontraditional finance stance. It's partnering with challenger financial services companies like Monzo rather than the big banks at this stage.

So why did I invest in Wise? There are some gurus whose portfolios I watch carefully for idea generation. James Anderson is one, especially his Scottish Mortgage Investment Trust (

LSE:SMT, Financial). Scottish Mortgage owned Wise before it listed, when it was still called TransferWise, and still owns the stock. Indeed, Baillie Gifford (Trades, Portfolio), who Scottish Mortgage is managed by, is Wise’s largest shareholder with 4.8% of the company. The company has rebranded from TransferWise to Wise because of its intention to establish itself as more than a pure transfer vendor.

The Financial Times Stock Exchange puts Wise into its “transaction processing services” subsector, but really it’s a fintech company. The company’s principal activity is the provision of cross-border money transfer services. It is a new and improved version of Western Union Co. (

WU, Financial). Its closest peer is probably Revolut, which was valued at around $33 billion at its last fund raising in July.

Disrupting is a word used too much in the fintech world, but Wise truly is disrupting the market for consumer and small and medium business foreign exchange transactions.

In its 10-year history, the company has seen extraordinary growth and now is expected to see transaction volumes of over 62 billion pounds ($85.5 billion).

So what is disruptive? The strength of the user experience, increasingly global coverage, absolute fee transparency, faster transfer speeds and significant cost advantage. All these attributes have caused a rapid consumer and SMB adoption, mostly through word of mouth. This also means customer acquisition costs (an important metric in the world of fast-growing tech companies) are low.

In the past two years alone, revenue has increased at a 54% compound annual growth rate. Unlike many fintechs, Wise has been profitable since 2017.

I have yet to get completely through the prospectus, but reading about Wise’s infrastructure sounds like it really is adding value to the money exchange and payments market. As Wise writes:

Combined, this infrastructure solves the main pain points facing our customers:

  • Price: Our prices are on average up to eight times cheaper than leading traditional UK banks.
  • Speed: Over 38% of transfers are delivered instantly and about 83% in less than a day.
  • Convenience: The Wise experience is fast, intuitive and simple.
  • Transparency: We empower customers with up to the minute price comparison content, and by lobbying governments all over the world to change outdated laws.

With a current market capitalization of about 10 billion pounds, I see considerable upside potential to this stock. London lacks exciting technology stocks, and this company, given it is outside of the FTSE benchmarks because of its standard listing status, is still fairly unknown to investors. That’s also due to the direct listing process, where the drum beating of investment bank book building and road shows were not in place.

George Soros (Trades, Portfolio) said he invests first and investigates later so that he does not miss opportunities his gut tells him are good ones. As I’m a longer-term investor, I don’t normally tend to do this, but I am with Wise since a small position won’t kill me and I missed other opportunities like Google (GOOG, Financial)(GOOGL, Financial) in 2004 and Tesla (TSLA, Financial) in 2010 that my gut told me were good opportunities at IPO time.

Also, with investors like Anderson, Andreessen Horowitz and Peter Thiel in this stock, I feel I’m in good company. I know if I wait, and Wise keeps appreciating, my psychology won't allow me to get into the stock. It's already up nearly 25% since the IPO date. I wouldn't be surprised if a large bank acquires this company soon to just take it out, like Facebook (FB) did with Instagram.

Wise has its second-quarter 2022 trading update on Oct. 19 and its interim results announcement on Nov. 30, which I will be paying close attention to.

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Disclosures

I am/we are Long LSE:WISE
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