A Wise Investment
The first time I took note of Wise was in 2017. Back then Wise was known as TransferWise and Snapchat was not part of a camera business; we had a record-setting hurricane season, Robert Mugabe was ousted and Trump was accepted.
For those who do not know me, I am a product engineer and finance hobbyist. I assess and analyse various businesses within my circle of competence and from time to time I invest in value or growth stocks and/or funds. My tools of the trade currently are freetrade for stocks and HL for funds. Claim your free share with freetrade.
Back in 2017 I worked for a company called TransferTo (now thunes) and as any respectable product engineer, you always consider the market and assess competitors. From a product perspective and assessment, Wise was impressive. The growth they achieved coupled with the vast routes they implemented and features they released year on year showed a level of commitment and efficiency not seen in any other FinTech of that time. In 2017 Wise achieved record success and became profitable and as we will soon find out, has continued to achieve solid returns ever since.
The following analysis was conducted over the past 7 years of annual reports, from 2015 to 2021. Below is a summarised version of my analysis.
Wise set out on a mission in 2011 to build money without borders: instant, convenient, transparent, and eventually free. Wise has subsequently built out a leading global technology company building the best way to move and manage money around the world. Wise currently processes 2.5% of money sent by people all across the world.
Wise charges on average a fee of 0.69% (2021) per transaction and they manage to transfer 38% of transactions instantaneously. It is no wonder that over 10 million people have joined Wise and have chosen to ditch traditional banks and institutions. What is outstanding is that roughly 67% of new customers came in via “word-of-mouth”, proving that they have a solid NPS, which equates to active users finding value in their offering and promoting the use of Wise.
Revenue is generated from four product offerings: Wise Transfer, Wise Platform, Wise Personal Account, and Wise Business Account.
Wise Transfer is their initial offering launched in 2011 covering 85% of the world’s bank accounts.
Wise Platform was launched to provide traditional institutions, large banks, neobanks, wallets, etc. access to their performant money transferring platform. Stanford Federal Credit Union, GoCardless, Monzo and N26 are consumers of the Wise Platform. “Wise has seen an increasing demand for their API platform.”
Wise Personal and Business accounts were launched in 2016 and have seen steady, stable growth over the years. Their Business Account customers have grown from 194 000 in 2020 to 300 000 in 2021 and Personal Account customers have seen great results with debit card holders growing to 1.6 million.
Wise has experienced exceptional revenue growth from £9 717 000 (2015) to £421 000 000 (2021) which equates to a 7-year CAGR in revenue of 87.41%.
Whilst the revenue of Wise is nowhere near as high as traditional institutions, it is evident that their competitors are losing revenue whilst Wise and others have increased revenue and market share over the same period.
The risk factors for Wise remain similar across the years of 2015 to 2021. In the 2021 annual report Wise had explicitly broken down their risk strategy, detailing how each tier of their risk team would be involved in solving and addressing the areas of risk. The main areas of risk are strategic, operational, financial and compliance. Each area deals with the risk of scale from different aspects of the business, from competition, to fraud, tax, infrastructure and more. My view of their risks remain unchanged and does not cause me concern in the current state.
Wise has managed to create a competitive and sustainable business. They are on route to achieve economies of scale, meaning that the gap between revenue and cost of revenue should continue to widen as they onboard new customers and manage to lower or keep costs consistent whilst delivering good ROIC numbers.
Wise has partnered with traditional institutions and neobanks, which has proven successful. As neobanks continue to grow in popularity with Millenial and GenZ adopters, so does the demand for efficient and cost effective money transferring solutions for these neobanks. Wise has managed to integrate with accounting software providers, making it easier for small to medium sized businesses to easily manage their money.
The FCA has granted a licence for Wise to offer their personal and business account holders the ability to hold their money in different asset classes. I see this as an important and fundamental step to lock-in current users and entice finance savvy users away from other personal wealth management platforms and traditional financial instruments. At each major interval, Wise has released a feature that has proven to shown steady and stable growth very early on. Wise has a proven track record when investing their equity and they manage to maintain solid ROIC numbers.
Over the past 10 years, Wise has managed to assess the landscape and build features that have kept their company ahead of competitors, and claim market share from long-standing institutions. With Wise’s low fees for money transfers, coupled with nearly 40% of transactions occurring instantaneously, they’ve secured customers from all across the globe. As Wise is approaching economies of scale, they will certainly continue establishing partnerships with traditional institutions and noebanks. They will also continue integrating with the wider financial ecosystem via accounting software. Wise has made clear head-way into securing an economic moat that providers them with a competitive advantage that is demonstrated by 67% of new customers joining via current users promoting their services.
Revenue is generated from the following major geographical regions; UK 32.37%, EU 22.75%, Asia-Pacific 21.18%, US 17.33%, Rest of World 6.34%. In 2016 the breakdown was EU 78%, Rest of World 22%. Showing Wise has diversified their geographic revenue sources and no longer depends on one region for revenue. Their ability to generate revenue consistently with persistent growth whilst widening the gap between the revenue and cost of revenue is impressive.
The board is composed of nine members, two of which are the original co-founders. This may be seen as extremely beneficial as we, the investor, have a tangible and proven track record of past performance to assess them on. Of Course this is not conclusive and cannot be seen as a direct correlational for future success, but having a tangible track record of past performance can help us understand how well the board invests capital, manages the business and equity and how they assess and resolve risks and maintain growth. The remaining members have all achieved great success and impressive results in their own endeavours. Clare Gilmartin (ex-CEO of Trainline), Tan Hooi Ling (Co-founder of Grab), Alastair Rampell (General Partner @ Andreessen Horowitz), Ingo Uytdehaage (CFO of Adyen), David Wells (ex-CFO Netflix) and Roger Ehrenberg who left in mid 2021.
Wise has been on an impressive journey since 2011. Over the past 10 years they’ve managed to successfully grow their business year on year and earn revenues of £421m for year end 2021. It took Wise 10 year to go from startup to IPO and in those 10 years they’ve managed to claim a market share that equates to them processing 2.5% of money transferred globally. Given the high-level analysis I’ve provided above, that is based on their annual reports, coupled with a personally calculated estimated growth rate, Wise are predicted to have a 7 year intrinsic value per share of roughly £46. I’ll continue to watch and invest in Wise as they proceed to claim more of the market, and eventually deliver on their business goals. To “build money without borders: instant, convenient, transparent, and eventually free.”
Content and information associated with the presented analysis are for information purposes only and should not be used for material, investment, financial or any other advice. The content does not constitute professional or financial advice.
Loss of principal is possible when investing. There are associated risks you should make yourself aware of when investing.
