Why Did Drake Just Invest in This $5 Billion Canadian Tech Company?

Wealthsimple is the new kid on the block but it isn’t a publicly-listed company. However, investors can instead buy the Power Corporation of Canada stock, the largest shareholder of the Canadian tech startup.

| More on:
Financial technology concept.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

A Canadian fintech startup has plenty of star power. The valuation of Toronto-based Wealthsimple soared to $5 billion after raising $750 million in investments from venture capital investment firms and celebrities on May 3, 2021. Among the star-studded investors were rapper Drake, Green Lantern star Ryan Reynolds, and Back to the Future lead actor Michael J. Fox.

Wealthsimple is the firm behind some of the leading digital financial products in Canada. Furthermore, it was chiefly responsible for revolutionizing financial interactions among Canadians. The online financial products it brought to the market are smart and simple.

Biggest growth period

The new investment couldn’t have come at a better time. Wealthsimple is enjoying its biggest growth period to date in seven years of corporate existence. Canadians interest in stock trading suddenly increased during the pandemic, as evidenced by the rapid growth of Wealthsimple Trade in the past 14 months.

Apart from the trading platform, there’s mobile app Wealthsimple Crypto for users who wish to buy, sell and hold cryptocurrency assets securely. Wealthsimple Cash, a peer-to-peer money transfers app, was introduced in early 2021.

Massive transformation

With the new capital, Wealthsimple can expand its market position, build out a product suite, and grow its team. Currently, it offers automated investing, saving and spending, and tax filing. According to Mike Katchen, co-founder and CEO of Wealthsimple, the financial services industry is in the midst of a massive transformation.

Katchen envisions Wealthsimple to be at the leading edge of that transformation in Canada. He adds that the latest financial round should fuel Wealthsimple’s growth and allow it to reach millions more. Soon, everyone will have access to the simplest, most powerful financial products and services, he said.

For growth-stage venture capital firm Meritech, General Partner Max Motschwiller said, “We invest in companies with the potential to revolutionize industries and become enduring market leaders.” On October 2020, Wealthsimple raised $114 million at a $1.5 billion post-money valuation.

Largest shareholder

Regular investors can’t invest yet in Wealthsimple because it’s not publicly listed. However, they can consider investing in Power Corporation of Canada (TSX:POW) or PCC. The $24.94 billion diversified international management company and its group is the largest shareholder (62%) on record of Wealthsimple. The PCC group includes IGM Financial and Great-West Lifeco.

Power Corp. trades at $36.84 per share and pays a juicy 4.86% dividend. The stock’s trailing one-year price return is 75.68%. Over the last 46 years, POW’s total return is 88,098.43% (15.87% compound annual growth rate). Current investors are winning by 27.76% year to date.

Like Wealthsimple, Power Corporation provides various financial services. It offers annuities, insurance, retirement, reinsurance, and asset & wealth management through its operating companies. Its core investment in Power Financial is the anchor in POW’s consistent earnings.

Power Corporation attracts income investors because it’s a dividend aristocrat with an earnings growth of 3%+ CAGR in the last decade. More growth is on the horizon as the company continues to invest and develop investment platforms. Its leading franchises would also pursue organic and inorganic strategies to assist in POW’s long-term growth.

New kid on the block

Wealthsimple is the new kid on the block. With solid backing from the Power Corporation of Canada, it has the potential to have a wide MOAT in the financial services sector.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Undervalued Dividend Stocks to Buy Right Now

Dividend-paying stocks such as Bank of Montreal offers investors the opportunity to generate outsized gains in the next year.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Dividend Investors: 2 Top Oversold TSX Stocks to Buy for Total Returns

RRSP investors can pick up top TSX dividend stocks at cheap prices today and get a shot at some attractive…

Read more »

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »