Coinbase is the biggest crypto exchange in the United States and it is expected to go public on April 14 through a direct listing on the Nasdaq exchange. Reports state that it will go public with the ticker COIN.
The firm’s public debut comes at a time when the market for cryptocurrency assets is booming, amid surging interest from retail and institutional investors. Although the proposed listing price is not yet confirmed, private market valuations for Coinbase reached $68 billion as of Q1. On their part, investors expect the valuations to top $100 billion since the company just published a stellar set of preliminary Q1 2021 results.
Coinbase revenue spiked 9X year-over-year in the Q1 period. Having that in mind, the crypto space might be getting quite hot with bellwether Bitcoin up by nearly 8X in the past 12 months. The bond yields are also surging which means that Coinbase may be listed as the market peaks.
Many now wonder, how can we value Coinbase? Here is an overview of the firm’s crucial financials, potential valuation, and peer data. Users can make their valuation estimates for Coinbase stock using available models.
Revenues Have Surged Simultaneously To The Bitcoin Price
Coinbase’s platform mainly enables retail and institutional clients to buy, sell, and store cryptos like Ethereum and Bitcoin. Almost 90% of the firm’s revenue comes from the transaction fees from trading and through services like storage and analytics.
The other 10% of the company’s sales in the past year arises from the revenue it books by selling its crypto assets to clients. Transaction revenues are majorly dependent on the pricing trend for cryptos like Bitcoin. That, in turn, influences the total number of monthly transacting uses (MTU) on its platform and the cumulative value of the transactions.
Increasing price volatility for the crypto assets also drives up revenue. The total revenue increased from about $534 million in 2019 to around $1.28 billion in 2021. The company’s monthly transacting users increased from around 1 million to almost 2.8 million, with the total trading volumes surging from around $80 billion to nearly $193 billion.
Coinbase had a massive Q1 2021 where revenues grew to reach $1.8 billion and the trading volume for this quarter surpassed $335 billion as bitcoin prices nearly doubled year-to-date. That drove up MTUs on the platform.
Based on the current Q1 run rate, the firm’s revenues would reach $7.2 billion for the whole year. However, that seems too optimistic since the BTC rally might lose momentum in the coming months. Thus, analysts project that the company’s revenue for the year will reach around $5 billion.
Margins Are Strong, But Will Coinbase Remain Constantly Profitable?
As opposed to the unicorns that go public, Coinbase seems to be quite mature and is now profitable. However, the company acknowledged that it might take a while before it records profits constantly. The net margins turned positive in 2021, recorded at around 25% and the number might pick up further later this year.
Taking into account the preliminary Q1 2021 results, margins for this quarter were estimated to be as high as 44% powered by strong trading volumes on the platform amid the soaring bitcoin prices. The thick margins are supported mainly by the high transaction fees that are estimated at around 0.5% of trade value with lower fees for the bigger trades.
That factor is significantly ahead of the other exchanges like the Nasdaq. But, earnings may plunge steeply in case the crypto asset prices drop.
Will Coinbase Be Valued Like A Cyclic Stock?
Coinbase might list at a significant premium to its private market valuation due to the high valuations for equities in general, the company’s stellar Q1 numbers, and stronger investor appetite for the crypto assets. Additionally, the firm that held nearly 11% of all the crypto by value as of the last quarter, is one of the few pure-play options for investors to bet on the general crypto economy.
But, there are concerns. The crypto market is generally cyclical and the prices normally correct steeply after a major rally. Coinbase projects that it happens once every two to four years, adding that there have been four major crypto-asset price cycles since 2010. This means that Coinbase’s earnings will be cyclical and the same case will apply to its stock price.
Separately, the firm’s decision to go with a direct listing means that the early investors can sell shares on the first day of trading without the normal IPO lockup period, possibly contributing to a major supply of the stock.
Some models value Coinbase at around 15X the estimated $5.4 billion in 2021 revenue for the firm, which translates to a market cap of around $80 billion. It compares to a forward multiple of nearly 8.5x and 12x respectively for the payments majors Square and PayPal that have increased exposure to cryptos, and a 9X multiple for The Intercontinental Exchange (ICE).
Even though these companies might see considerably lower revenue growth rates when compared to Coinbase in 2021, their profits and revenues are likely to be more stable. Thus, it will take time before Coinbase takes on a stable and consistent trajectory. However, with more crypto adoptions taking place, the company’s stock might turn out to be a worthwhile investment in the mid and long term.
Binance To List Coinbase Stock
Crypto exchange Binance is expected to list Coinbase’s stock token on April 14, 2021. This listing will take place at a UTC after Coinbase has gone public on Nasdaq. The specific time is yet to be published. This listing will enable Binance users to trade the Coinbase stock in fractions.
Binance began trading in tokenized stocks earlier in the week, starting with Tesla. At that time, the crypto exchange said that it would list more stock tokens according to the market demand. Notably, the Tesla stock token has seen a trading volume of $6.7 million within 3 days of its listing on Binance.
The Binance stock tokens are prices and also settled in BUSD which means that the users can purchase and redeem them through the exchange’s stablecoin. All interested traders are needed to pass the know-your-customer (KYC) and other relevant compliance measures.
Nevertheless, residents of the United States, Turkey, mainland China, and the other restricted jurisdictions are banned from buying stock tokens on Binance. Since Binance follows the traditional market hours for the tokenized stock trading, the Coinbase stock token will follow the Nasdaq hours.
It is not yet clear who will help Binance to settle the Coinbase stock token.