TransferWise just doubled its valuation to $3.5 billion — and it points to a strong public listing

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Fast-growing UK-based fintech TransferWise has seen its valuation double following a $292 million secondary share round, per a press release seen by Business Insider Intelligence. The round was led by Lead Edge Capital, Lone Pine Capital, and Vitruvian Partners, while existing investors Andreessen Horowitz and Baillie Gifford increased their holdings in the fintech.

The funding values TransferWise at $3.5 billion, more than double the valuation it achieved when it last issued new shares in November 2018, cementing its status as one of Europe's leading fintechs.

While the company has no need to raise new capital, the secondary share has enabled early investors to gain returns and allowed the startup to broaden its investor base, TransferWise CFO Matt Briers told Business Insider Intelligence.

Here's what it means: The round is a testament to TransferWise's business model amid continuing concerns over the route to profitability for many of its peers.

TransferWise's impressive business fundamentals explain investor appetite. The eight-year-old startup serves 5 million customers worldwide, processing £4 billion ($5 billion) every month across 1,600 currency routes. In addition to providing money transfer to retail customers, the fintech has broadened its revenue streams in recent years, not least by signing a number of partnerships with incumbents and fintechs to provide its services to their customers. The firm is also set to roll out its borderless account, a multicurrency account that comes with a debit card, in the US at some point this year, according to Briers.

Unlike many of its peers, TransferWise is already profitable. Fintechs have attracted a strong inflow of investor cash in recent years — but they've also struggled to turn a profit as they seek to scale their offerings while maintaining lower-cost services than their established competitors. In contrast, TransferWise has registered two straight years of profits, posting £6.2 million ($8 million) in post-tax profits for its fiscal 2018 (ended March 31, 2018), on £117 million ($151 million) in revenue. And its managed to do it by doing precisely what its fintech peers have done: By significantly undercutting the fees charged by incumbents for financial services. It typically charges less than 1%, compared with the 7% global average for cross-border transfers.

These developments also suggest that the firm is likely to wait longer before going public. It's no secret that the startup has ambitions of going public at some stage, with cofounder and chairman Taavet Hinrikus saying as much in a blog post published in 2017, per Sky News. And given that its latest backer, Vitruvian Partners, has invested in a number of digital-first firms prior to going public, that route looks more likely now. However, with the latest round rewarding some of the startup's earliest investors and employees, TransferWise can IPO at a pace of its own choosing rather than be shoehorned into doing so to satisfy stakeholder demands.

The bigger picture: TransferWise's secondary share sale highlights that the bottom line is still the key for investors, and all signs point to a strong public listing.

Investor confidence in the fintech is demonstrated by its valuation hike. TransferWise continues to grow rapidly, with its revenue for the year ending in March 2018 up 77%. That investors have purchased existing shares at double the price they were going for during the startup's previous funding round is illustrative of TransferWise's impressive upward trajectory.

And the fintech's strong business fundamentals point to a promising public flotation, whenever that may be. A number of high-profile tech firms have gone public in recent months, most notably ride-hailing giant Uber and competitor Lyft. However, these firms' stocks have nose-dived after their debut: Lyft shares are currently exchanging hands for around $55, despite listing at $72, for instance. These disappointing performances can be attributed, at least in part, to the fact that investors remain wary over the unclear path to profitability for these companies, according to analysts cited by Markets Insider. That TransferWise is already profitable and continues to register rapid growth suggests that it would likely fare much better if it went public.

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