“Cryptocurrency exchange Coinbase was valued at just over $100 billion in a recent private market share sale ahead of its upcoming public listing,” Axios writes.
Why It Matters: Coinbase, a popular cryptocurrency exchange, announced its intention to go public through a direct listing earlier this year. And now, it’s preparing to ride the Bitcoin and cryptocurrency boom. With a valuation north of $100 billion, Coinbase could hit the markets at a “higher initial valuation than any other U.S. tech company since Facebook.”
Numbers To Consider:
- Nine-Month Revenue 2020: $691 Million
- Nine-Month Net Income 2020: $141 Million
- Full Year Revenue 2019: $530 Million
- Full Year Net Loss 2019: $30 Million
- 2018 Valuation: $8 Billion
Where does $100 billion come from? As it prepares for its direct listing, Coinbase started selling secondary shares (1.8 million in weekly batches) via Nasdaq Private Markets last month.
- The goal helps the firm determine a reference price for the public markets.
- An initial batch sold 75,000 shares at $200 apiece, working out to a $54 billion valuation.
- The most recent one sold shares at $373, which gives the company a valuation north of $100 billion.
The Bottom Line: With prices surging, “it’s unclear if the secondary share sale is still useful to Coinbase for the purpose of determining a reference point for the direct listing.” Axios also reported it was unable to determine how much longer Coinbase plans to secondarily distribute shares.
$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.