Coinbase announced it will hit the public markets via a direct listing on April 14, The Information reports.
Why It Matters: The direct listing is an interesting choice, but nontraditional paths to the public market have grown in popularity of late (just look at SPACs). In a public offering, companies usually pay investment banks to underwrite the move. A direct listing sells existing shares instead of new ones, cutting the IBs out of the equation.
- Roblox, Palantir and Slack have all gone public using direct listings. But while those were all on the New York Stock Exchange, Coinbase will arrive on the Nasdaq as the exchange’s most notable direct listing.
Numbers To Consider:
- Coinbase said its shares trade as high as $375 in a recent prospectus filing.
- Based on the outstanding common stock, that would value the company at $74 billion.
- In the last few months, Coinbase has been reported to have a valuation as high as $100 billion, though.
The Outlook: As The Information notes, the futures of Coinbase and Bitcoin are highly intertwined. A large part of Coinbase’s success has risen from the crypto and primarily Bitcoin boom.
- Coinbase generates revenue by taking transaction fees when users trade digital currencies on the platform.
- And while Bitcoin is the key to its success, Coinbase acknowledged its volatility as a notable risk in its prospectus.
From Morning Cents February 22, 2021:
$100 billion values Coinbase at 108.5x current revenue, something that on the face of it seems absurdly high.
On one hand…
- Exchanges like the NASDAQ or NYSE are very valuable, have high barriers to entry, and have the ability to “tax” the volume coming through its system.
- Coinbase could become a wildly valuable and differentiated company if they become the premier exchange and custodian for institutions around the world.
- Coinbase will at least have the stickiness of a unique brokerage, so they definitely should at least be valued higher than Robinhood (40x revenue).
But on the other hand…
- Cryptocurrencies aren’t exclusively traded on single exchanges and the differentiation between Coinbase, Gemini, Kraken, and others is relatively low.
- Also remember that fees taken on cryptocurrency are much smaller than fees taken on stocks, bonds, real estate, and other more “illiquid” assets.
- If many high-quality exchange and custodian competitors enter the market, something that looks like it’s happening, then Coinbase might not be as defensible a giant as they seem now.
- Furthermore there’s additional risk that decentralized exchanges gain popularity, which look to cut out middle-man exchange profits entirely.