over 2 years ago • 3 mins
Payments giant Wise – formerly known as TransferWise – sent its shares out onto the stock market on Wednesday in the UK’s biggest “direct listing” yet.
What does this mean?
Eschewing the investment banks (and the hefty fees) involved in an initial public offering (IPO), Wise’s early investors and employees instead sent around 25% of their existing shares straight to the trading floor. One major drawback of direct listings is that companies can’t generally pocket cash from selling new shares at the same time – but that was no biggie for Wise. The London-based fintech firm, which began helping people transfer money overseas for less back in 2010, has been profitable since 2017. What’s more, Wise’s shares “went public” at a price which values the entire company at almost $11 billion – up from $5 billion less than a year ago.
Why should I care?
The bigger picture: Is it Wise to hope?
Spotify’s 2018 direct listing sparked a copycat craze in the US, and some analysts reckon Wise’s groundbreaking move could mean the same for the UK – Europe’s busiest stock market. Still, that may rely on investors getting on board with Wise’s “dual-class” share structure. A favorite of tech firms, this gives early shareholders (including bosses) much more power than later investors. While dual-class companies are currently barred from the top tier of the UK market – and the FTSE 100 share index – Britain’s financial authorities are considering a shakeup. But if Wise’s newly public shares follow Deliveroo’s second-class stock south, hopes for similar future listings could evaporate.
For markets: Keeping clever company.
Wise’s enterprise value is now approximately 48x its estimated earnings (before a few adjustments) in 2023 – even higher than the 45x average for rivals PayPal, Square, and Adyen. Still, fintech stocks are all the rage at the moment, and Wise could justify that valuation if it continues to grow earnings faster than the others.
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Korean tech giant Samsung Electronics said on Wednesday that it expects its second-quarter profit to be its sunniest in three years, buoyed by the global semiconductor shortage.
What does this mean?
Samsung’s the world’s biggest producer of memory chips, so it stands to reason that the imbalance of microchip demand and supply has proved a helpful tailwind. Prices of widely used dynamic RAM memory chips, for instance, rose 27% in the second quarter of this year versus the first. The company reckons it’ll turn in some $11 billion of quarterly profit as a result – up 53% on the same time last year, and ahead of investor expectations. And the rest of 2021 looks bright for Samsung too: memory chip prices are forecast to increase at least another 10% this quarter, with high demand – and therefore higher prices – also expected to continue on into next year.
Why should I care?
For markets: Sunny side down.
Despite Samsung’s better-than-expected earnings update, its share price actually fell a little on Wednesday. See, analysts and investors have known about chip shortages since February – and Samsung’s stock has already flown up some 50% this year, compared to the Korean stock market’s 6% rise. Investors may therefore have used Wednesday’s positive news as an opportunity to sell some shares and lock in a profit.
The bigger picture: The chip chat puts some carmakers in the driving seat.
While major automakers like Jaguar Land Rover and Mercedes-Benz are falling short of output targets on the back of semiconductor shortages, other firms are benefiting. Data out this week showed that German rival BMW had cannily stockpiled enough chips to keep production running and cars selling as planned – catapulting the company into pole position in terms of US luxury car sales this year.
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