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Wise Plots $7bn Listing Amid IPO Frenzy

By Dmytro SpilkaStock MarketsApr 28, 2021 11:31
uk.investing.com/analysis/wise-plots-7bn-listing-amid-ipo-frenzy-200471484
Wise Plots $7bn Listing Amid IPO Frenzy
By Dmytro Spilka   |  Apr 28, 2021 11:31
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UK-based fintech leader, Wise, is braced for an IPO that’s reportedly set to arrive on the London Stock Exchange at some point in May 2021. The company has spent much of 2021 making steps towards its eventual public listing, including undergoing a name change from TransferWise and subsequent rebranding. With the company estimated to achieve a valuation that could range towards $7 billion, the initial public offering is set to be one for the LSE to remember. 

The company itself is known for delivering cross-border transactions, and has drafted in the likes of Goldman Sachs (NYSE:NYSE:GS) and Morgan Stanley (NYSE:NYSE:MS) in a bid to manage the deal that appears set to arrive on the London Stock Exchange in the coming weeks - as opposed to Amsterdam or New York, which were both considered and opted against. 

Wise’s listing is likely to arrive in the midst of a boom period for fintech IPOs over the past year, with the Nasdaq in particular facilitating plenty of public flotations throughout 2020 and early 2021. Although London has been quieter than its US counterpart, 2021 has seen the floatation of Deliveroo (LON:ROO), Trustpilot (LON:TRST) and Moonpig (LON:MOONM) arrive on UK shores.

Wise completed a $319 million funding round in 2020 that valued the company at $5bn, and since then it’s reported a 70% increase in revenue to $418 million over the course of the past financial year.

The good fortunes of fintech companies like Wise in the wake of the COVID-19 pandemic have largely emanated from widespread transitions towards digital transformation within companies and through individuals at home during lockdown. With the use of digital finance and communications and collaboration becoming increasingly remote, many company founders have learned that their favourable revenues make now the perfect time to launch an IPO that will capture the imagination of investors. 

NYSE and Nasdaq IPOs
NYSE and Nasdaq IPOs


(Image: Audit Analytics)

As the chart above shows, with the help of SPAC IPOs, the initial public offering volume seen in 2020 has exploded to a size that hasn’t been seen since the days of the dotcom boom at the turn of the 21st Century. With greater excitement among investors for tech offerings, these are heady days for digital transformation specialists and fintechs alike. 

Do IPOs Pay Off For Investors?

Optimism for the Wise IPO has been fuelled by higher usage volumes in the company in the wake of the COVID-19 pandemic, with more digital cross-border transactions being created around the world and a larger transition towards contactless and digital finance taking place over 2020. 

Logically, there’s no better time for Wise to launch an IPO than off the back of a highly profitable year and in the midst of unprecedented levels of investor excitement towards tech-based initial public offerings. In potentially listing Wise’s IPO for prospective participants, Freedom Holding Corp. (NASDAQ) acknowledges that it issued 35.66M shares, 4.88M (13.70%) and 7.18M (20.10%) of them being owned by the co-founders.

Cumulative returns after IPO
Cumulative returns after IPO


(Image: Financial Times)

However, as we can see from Financial Times metrics, just because an IPO may seem like a good idea for a company, it doesn’t necessarily guarantee significant returns over time. In fact, cumulatively speaking, the window for positive returns on IPOs is relatively short. 

Distribution of first day returns by year
Distribution of first day returns by year


(Image: Nasdaq)

Despite clear evidence that IPOs tend to underperform over significantly long periods of time, Nasdaq data shows that the opposite is generally true over significant short periods of time. Last year was the most fruitful for IPO ‘pops’ with an average of a 38% jump in share price occurring after stocks go public. The range of initial public offering pops is significantly larger too, with first day returns extending to 140% of a stock’s initial listing value. However, there have also been trends indicating that negative returns of up to 40% can take place too. 

Buying Into Wise IPO Potential

In the past, IPOs as highly profitable prospective investments were made accessible to only the privileged customers of prestigious brokerage companies and it was often a challenge for individual retail investors to find ways of getting in on the party. 

It was virtually impossible to buy shares for the price set by the company because you had to sit and wait until the shares actually began trading on the public stock market at whatever price that supply and demand leveraged. 

Technologies and marketplaces have been a significant force for good in terms of enabling retail investors to buy into IPOs and get in on shares before they’re publicly listed. To participate in IPOs like that of Wise, it’s important to do your homework and pick an online brokerage you trust. 

The IPO frenzy of 2020 and 2021 is rumbling on, and although the prospect of long-term profit is historically difficult to find for initial public offerings, there’s certainly some short term prosperity to be had - especially when it comes to certain IPOs in the fields of tech and fintech. However, in a market that’s punctuated by hype, it’s vital that all investors conduct their due diligence. 

Wise Plots $7bn Listing Amid IPO Frenzy
 

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Wise Plots $7bn Listing Amid IPO Frenzy

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