Wise Plc Q3 Premium Earnings Update

A fast-growing fintech company, growing 20% with <1% market share.

This is a free sample of our quarterly TDI Premium earnings update for TDI members.

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Wise just released a short but sweet update this morning. The update was well received, and the stock closed up over 11% today.

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In case you didn’t know, Wise is, to put it simply, a “foreign currency exchange” business. What makes Wise special is that we believe that they are the best in the world at doing this; it’s their core focus. They built the licensing infrastructure and integrations with local payment methods all in-house. This lowers their costs (which they partially give back to their customers) and improves the speed of their transactions.

For Bouke’s trip in Japan, he used Wise, and he found out their costs are way (like way) lower compared to traditional banks. For example: ING, Bouke’s traditional bank, charged him about 4-5% of the total transaction to convert euros to yen and withdraw money. Wise charged him roughly 0.6% + a better exchange rate.

Back to the quarterly update.

Key takeaways

Wise processed £47.4 billion in cross-border volume in the quarter, a 25% Y/Y growth. We even saw a slight acceleration in their volume growth.

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Wise active customers grew to 10.9 million, a 20% Y/Y increase. A first simple conclusion can be drawn: Wise customers are handling more volume for Wise, which, in addition to growing its customer base, accounts for a large portion of Wise’s growth. Wise Platform customers likely play a role in this.

Wise Business active customers grew 25% Y/Y, and business volumes grew by 37%. Over the past few months, Wise has invested heavily in improving its Wise Business offering. The initial results are already starting to show.

Customer holdings (cash and assets) grew 34% Y/Y to £27.5 billion. Card and other revenue even grew 30%. More and more people aren’t just using Wise to convert/send money overseas but also use Wise as a bank. They can use Wise to easily invest in ETFs and bonds and pay with Wise’s cards. For these card payments, Wise receives a small but high-margin interchange fee.

Market share

Wise’s growth confirms the strategy is working, as the company continues to take market share. The clearest (mathematical) evidence of market share gain is that Wise is growing faster than the cross-border payments industry as a whole. The personal cross-border market grew about 20% over the last two years. In contrast, Wise has reported active customer growth of roughly 30% annually over the last three years. However, Wise’s market share today is still <1%. The runway likely is extremely, extremely long.

Because Wise’s growth rate exceeds the general market growth rate, Wise is mathematically capturing a larger slice of the total volume.

Take-rate and profits

The cross-border take rate (the percentage Wise charges on transfers) was 52 basis points (0.52%). This was flat compared to the previous quarter but down from 56 bps a year prior. This reinforces our confidence in Wise’s deliberate strategy to lower prices to drive long-term growth.

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74% of payments were delivered instantly (in under 20 seconds), a significant improvement from 65% in the same period last year. This enhances the user experience and (arguably) widens the moat against competition that cannot match this speed or cost structure.

Underlying income reached £424.4 million, up 21% Y/Y. Think of underlying income as the money Wise considers to be its true, sustainable earnings from running its business, stripped of temporary bonuses caused by the global economy.

Outlook

Despite heavy investments in infrastructure and pricing cuts, Wise expects to hit the top end of its profit margin target (16%). Notably, the underlying Profit Before Tax (PBT) margin is expected to be towards the top of the 13-16% target range, even including costs related to its dual listing.

Our thoughts

We believe Wise delivered excellent results. The update validates our thesis and research. We also like that growth didn’t solely come from new users but from stickier users. The 34% jump in customer holdings indicates that customers are using Wise as a primary international banking alternative rather than just for one-off transfers. This diversification reduces reliance solely on transfer fees.

Valuation Update

Wise isn’t particularly a no-brainer investment if you look at the valuation down below. However, Wise leaves room for tremendous upside because of 1) optionality into new verticals and 2) the runway should be much longer than 10 years. Possibly decades.

The quality of the company and the way the management plays the long game make us happy shareholders.

The Dutch Investors