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After Q2 results, what’s next for the Wise share price?

At 810p today, the Wise share price has lost 11% in the past week, and 30% in a month. But at its IPO on 7 July, it priced its shares at 800p. Wise might simply be returning to its fair valuation.

Wise Source: Bloomberg

Wise's (LON: WISE) mission is to make ‘money work without borders.’ And the Wise share price is being closely watched by international investors. That’s because it’s one of the most valuable FinTech start-ups in Europe. At £8 billion, its IPO was the London Stock Exchange’s (LSE’S) biggest direct listing ever. The company’s unique selling point is that it can transfer money across 56 currencies cheaper and faster than its rivals. And last year, it processed 2% of the world’s retail cross-border payments.

But competitors including Western Union, PayPal and traditional banks all want their market share back.

Where do you think the Wise share price will go next?

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Wise financial results

Wise released its Q2 results for the 2022 financial year on Tuesday. Its share price has dropped 11% since then. At first glance, it’s difficult to see why. CEO Kristo Käärmann commented that Wise was ‘moving more of the world’s volume and operating at a lower cost.’

And the numbers back him up. 4 million customers transferred £18 billion in Q2 2022, a 10% increase on Q1 2022, and a 36% increase on the same quarter last year. Revenue increased 25% year-over-year to £132.8 million. And unlike most growth stocks, it’s already profitable, making £31 million in FY 2021.

It also expects revenue growth of 21-25% for FY 2022 over FY 2021. And gross margin for FY 2022 is predicted to be 65-67%, up from 62% on the previous financial year.

Improving technology

Due to its rapid growth, the FinTech company has reduced average customer prices from 0.70% to 0.62% over the past year. And payment speed also increased — 40% of all transfers in Q2 2022 were instantaneous, up from 38% in the previous quarter.

Wise is also increasing the convenience of its online payments. In India, it’s created a payment network for customers to send money via smartphones without needing to know the recipient’s bank details.

And it just launched its Assets service in the UK. Customers can now invest money held in a Wise account in a low-risk index-tracking fund. However, customers can still spend the money like cash. With traditional savings accounts delivering rock bottom returns, this is an attractive feature for personal customers. But some analysts are expecting a stock market correction soon. Assets could become a public relations disaster.

Meanwhile, business customer accounts grew 44% in a year. Businesses can now add notes to card transactions, control payment approvals and enforce spending limits. And 98% of European business accounts are now verified within 24 hours, up from 50% last quarter.

Financial Conduct Authority Source: Bloomberg

Headwinds for the Wise share price

Last month, Käärmann was fined £365,651 by HMRC for deliberately defaulting on his taxes. Some investors are worried that the Financial Conduct Authority (FCA) could apply sanctions to Wise.

And interest rates are soon going to increase to combat rising inflation. As a growth stock, Wise is relying on access to credit that may be harder to acquire and more expensive to maintain.

There’s a bigger issue for the stock though. Competitors like $300 billion giant PayPal could lower their prices to outcompete Wise at any time. PayPal processed £730 billion in transactions in 2020. Wise handled only £54 billion. And Wise has a price-to-earnings ratio of 382, compared to PayPal at 59.

For the time being, Wise’s rivals believe that it’s worth losing some market share in order to maintain higher transaction charges. But as Wise grows, this calculation is likely to change. This may explain why Wise is continuing to reduce its fees. However, this strategy does make the company vulnerable to wider economic shocks.

But the FinTech start-up is growing its customer base, improving technology, and projecting further success. The Wise share price could rebound sharply. But its competitors will be watching closely.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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