Whenever I have covered Wise (LSE: WISE) shares, I have always tried to make it clear that I believe the company has tremendous potential to grow in the global foreign exchange market.
The company’s market share is less than 1% of the £5trn a day global foreign exchange market. This means it has barely scratched the surface of this vast global marketplace.
And I believe the enterprise will start to make a name for itself next year, as it reaches its first anniversary as a public company.
The outlook for Wise shares in 2022
According to the company’s report for the six months to the end of September, the group served 3.9m customers in the third quarter, an increase of 23% year-on-year. Its overall payment volume also increased 44% year-on-year, which showcases Wise’s appeal to consumers.
Unlike many other technology companies, Wise actually reduced the price its customers paid in the third quarter. The cost of each transaction declined from 0.69% to 0.62%.
By comparison, other companies charge as much as 3% of each transaction to convert currencies. This is the main reason why I think Wise shares will continue to head higher in 2022. The business is providing a service that clearly appeals to customers at a low price. Compared to competitors, the firm’s prices stand out.
Management is planning to continue to reduce costs to consumers for as long as the company can sustain this strategy. As the group is already free cash flow positive, it looks like it can still push costs lower.
For the six months to the end of September, Wise’s free cash flow totalled £59m, increasing 39% year-on-year. As this grows, it looks as if the business can continue to increase its marketing spend and reduce the cost of money transfers with consumers. The combination of lower costs and a wider marketing push should entice more consumers to the platform.
Challenges ahead
Despite the company’s improving outlook, Wise shares will undoubtedly face some challenges as we move into the new year. These could include competition from larger peers that can afford to undercut the business on each transaction.
If the group’s larger competitors decide to take meaningful action against the enterprise, it could struggle to fight off this competition. Profits will come under pressure as a result. These challenges could hit the company’s share price and force it to direct spending away from growth to maintaining market share.
Despite these risks and challenges, I think the group could make an attractive addition to my portfolio in 2022. I believe Wise is reaching an important stage in its growth story. And I want to be part of the company’s expansion over the next few years.
As it continues to expand, I think the firm can become a force to be reckoned with in the international foreign exchange market within the next five years.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
