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Canada’s Robinhood: Invest Before the IPO

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Robinhood, the controversial American stock trading platform, has undoubtedly changed the game. The app has been so popular that it has introduced a new generation of investors to the market. In some ways, Robinhood has become a meme by itself. Unfortunately, its Canadian rival Wealthsimple doesn’t get much attention. 

That could create an opportunity for early Canadian investors. Here’s what you need to know about Wealthsimple’s unique platform, its latest fundraising and the stock that could allow you to bet on a Wealthsimple initial public offer (IPO). 

Canadian Robinhood

Based in Toronto and launched in September 2014 by Michael Katchen, Wealthsimple is Canada’s most popular free stock trading apps. Over two million Canadians use the app to trade stocks, file taxes and invest in index funds through a robo advisor feature. 

Unlike its American rival, Wealthsimple doesn’t make money from selling order flow data. Instead, the platform makes money on a  1.5% currency conversion fee charged on CAD to U.S. dollar conversions for US-listed securities. Recently, they’ve also introduced a premium feature that gives users access to real-time stock quotes and trading. 

Wealthsimple’s ambitions stretch far beyond stock trading and taxes. This year, they launched Wealthsimple Cash – a peer-to-peer instant money transfer platform that allows Canadians to send cash as easily as sending text messages. The team has also introduced crypto trading, which means users can buy and hold Bitcoin and Ethereum directly. 

Put simply, Wealthsimple is the Canadian version of Cash App, Robinhood, TurboTax and Coinbase put together. A super app in the FinTech space. 

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Wealthsimple IPO

While the prospect of a homegrown FinTech super app is thoroughly exciting, Wealthsimple is still a private startup. Retail investors can’t bet on the company’s future. At least not directly. 

Power Corporation of Canada (TSX:POW) owns a majority stake in the company. Power Corp owns a 23% equity interest in Wealthsimple, on a fully diluted basis. This week, the company announced that Wealthsimple would raise fresh capital. 

Wealthsimple is raising $750 million from a group of investors that include venture firms like Greylock and celebrities like Ryan Renolds and Drake. The fundraising allows Wealthsimple to target more acquisitions and expand the portfolio, It also delivers Power Corp. $187 million ($164 million after-tax) in proceeds and leaves it with a 16% equity stake. 

Power Corp stock is currently trading at 11 times earnings per share and offers a 4.9% dividend yield. In other words, this is a grossly undervalued financial stock with exposure to a FinTech startup that has the potential to be one of Canada’s biggest startup successes. 

If Wealthsimple is eventually spun off or listed on public markets, its valuation could soar far higher than the $5 billion it is worth now, which makes Power Corp.’s stake much more valuable. Buying Power Corp stock could be a proxy bet on Wealthsimple’s future. 

Foolish takeaway

A little-known financial company owns 16% of Canada’s most promising FinTech startup. If Wealthsimple is spun off or publicly listed, Power Corp. shareholders could benefit immensely. Keep an eye on this stock. 

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

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