UK payments star can keep defying fintech slump

Wise logo is seen on a smartphone in front of a displayed detail of the same logo
Wise logo is seen on a smartphone in front of a displayed detail of the same logo in this illustration taken June 18, 2021. REUTERS/Dado Ruvic/Illustration

LONDON, Jan 17 (Reuters Breakingviews) - Is Wise (WISEa.L) merely stumbling or starting to fall? That’s the question facing investors in the 6 billion pound British foreign-exchange provider, which on Tuesday reported results for the three-month period ending on Dec. 31. Volumes, a measure of the amount of currency that customers are changing, were 26.4 billion pounds - slightly lower than in the previous three-month stretch. Spooked investors sent the shares down 6%.

Investors’ nerves are understandable. Even after the selloff, Wise trades at a punchy 44 times forward earnings according to Refinitiv data. And its gravity-defying shares have fared much better than financial-technology peers, arguably giving it further to fall in the event of a misstep.

But there’s a reasonable explanation for the volume shrinkage. Co-founder Kristo Käärmann reckons sharp currency moves earlier in the year, such as a strong dollar, pushed customers to send more money across borders than usual, hoping to take advantage of favourable exchange rates. Volumes per retail customer indeed leapt to almost 4,000 pounds per quarter from April to September, before falling back to 3,500 pounds. That implies users just pulled forward transactions that otherwise would have happened later, making the most recent numbers seem worse than they really are. Unlike other bombed-out fintech stocks, Wise’s revenue growth is strong, at 50% year-on-year in the most recent quarter, and it is highly profitable. That justifies cutting it a degree of slack. (By Liam Proud)

Reuters Graphics

Follow @Breakingviews on Twitter

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

Capital Calls - More concise insights on global finance:

Tim Cook’s pay re-enters earth’s atmosphere read more

BlackRock edges closer to its Blackstone roots read more

The fog lifts for Didi's path to normalcy read more

Inflation drop gives Fed leeway to save jobs read more

Gaming’s winter of discontent bolsters M&A logic read more

Editing by George Hay and Streisand Neto

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.