Wise Under Pressure Ahead of Q3 Update

The funds transfer stock has gained on rising profits, but some analysts expect a reality check when it reports earnings.​

Market Sentiment Shifts as Profits Peak

Wise published its interim report in early November, triggering a 30% rally in its share price following a period of uncertainty stemming from an FCA fine imposed on the company's CEO. The surge reflected investor optimism about its ability to maintain strong growth amid high interest rates, with nearly half of its income originating from record-high rates around the globe at the time.

Heading into its third-quarter trading statement on Thursday, the recent outperformance could turn into a weakness as the P/E ratio overshoots 20x. Analysts at HSBC downgraded the stock to 'hold' from 'buy', citing challenges from an overshooting P/E. However, the price target was revised upwards, though primarily on a technicality. In fact, the expected trend towards lower interest rates in 2025 could impact Wise's growth trajectory, given how much the company earned in the first half of its fiscal year from interest.

Mission-Zero Strategy Takes Centre Stage

When dissecting Thursday's release, Wise will likely maintain its traditional approach of limited financial disclosure, aligning with its mission-zero price strategy. Unlike conventional firms focused on maximising profits, Wise aims to reduce consumer costs to expand its market presence, targeting "trillions" in cross-border transfers. The key metric remains cross-border volume, last reported at 19% growth, as the company seeks to broaden its user base and increase transfer volumes.

Not all analysts share a pessimistic outlook. Early this year, UBS maintained its buy rating and raised its price target, citing strategic partnerships with Standard Chartered and Morgan Stanley for cross-border transfers. These collaborations could enable Wise to capitalise on economies of scale for income generation while managing larger money volumes for interest income. The market's response to Thursday's trading statement will likely hinge on these competing perspectives.

Wise Forms H&S Amid PE Concerns

Wise might be forming a bearish head and shoulders pattern, suggesting downside pressure towards the 1000p handle, which coincides with the golden pocket of the last upward leg from 910p to 1140p. The pattern emerged as the stock price fell to form a double bottom, with the neckline around 1030p as crucial support. A decisive break below could trigger a decline towards the 78.6% Fibonacci retracement of 960p, representing a 15% correction from recent highs. However, breaking past the peak of 1065p might invalidate the bearish setup, potentially leading to a retest of the 1085p resistance zone and, eventually, the record peak.

Source: SpreadEx / WISE

Key Takeaways

The upcoming Q3 earnings report for Wise comes amid conflicting market sentiment. While the company's mission-zero strategy and strategic partnerships offer growth potential, concerns about its overshooting P/E ratio and declining interest rates could pressure the stock. Market focus will likely remain on cross-border volume growth as a key performance indicator.