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Coinbase’s Monster Q1 in Context

Facebook’s crypto future, Coinbase’s monster Q1, Patreon, Canva and Tom’s Shoes.
(Nadezda Murmakova)
(Nadezda Murmakova)
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A week before it goes public via a direct listing, the release of Coinbase’s Q1 2021 reveals a promising start to the year for the cryptocurrency exchange, TechCrunch reports.

In Q1, Coinbase, which is “both cash-rich and well known,” posted 6.1 million monthly transacting users (+118%), revenue of $1.8 billion (+208%) and adjusted EBITDA of approximately $1.1 billion (+282%).

Justin Oh:

Our early estimates of Coinbase’s ($COIN) revenue growth greatly underestimated how much growth they get from higher Bitcoin prices and volatility. This is understandable because Coinbase only did $1.3 billion in revenue in 2020, much less than $1.8 billion in revenue in just the first quarter of 2021.

I am seeing indications that the company should trade above a $110 billion valuation, which would imply a 15x forward revenue and 25x forward EBITDA if Coinbase continues its Q1 performance.

With 56 million users, Coinbase is bigger than Venmo (>40 million) and Cash App (~30 million). Its current annualized revenue implies that they make more money than the Nasdaq ($NDAQ) or E*Trade ($ETFC). It has a commanding lead in cryptocurrency market share, with a mind-boggling 11.3% of all crypto assets stored on Coinbase’s platform

There are a couple of key risks to owning this business, though. 

  • The first is that its revenues are extremely volatile based on the price of Bitcoin. 
    • In Q1 2021, Monthly Transacting Users (MTUs) were 6.1 million and revenue was $1.8 billion when Bitcoin growth was 456.5%.
    • But MTUs were only 1.0 million and Revenue was only $98 million in Q4 2019 when Bitcoin was -40%.
  • The second is that the bulk of its current revenue, which is a “take rate” or “commission” on retail trades of Bitcoin, Ethereum, and cryptocurrencies, has been declining and will continue to decline aggressively over time. 
    • This is brought on by the natural fee-less nature of cryptocurrencies and the immense pressure that Robinhood, Venmo, Cash App, PayPal, and others are putting on commissions. Fees will undoubtedly go to close to zero, as they did with equities.

We should avoid applying the same valuation metrics onto $COIN as we do software companies, because of their cyclicality and diminishing revenue model. But $COIN could potentially be a steal if you believe Bitcoin will continue to rise immensely over the next 5-10 years. 

If you choose to own Coinbase, it should be because you’re immensely bullish on Bitcoin growth and because the company holds a massive 11.3% market share and its leadership in institutional services.

  • If they maintain their market share and cryptocurrency market capitalization is $30 trillion someday, then conceptually they could make over $50 billion in annual revenue on custodying and servicing the assets on their platform.

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Why Crypto Billionaire Mike Novogratz Bought Facebook Stock

Billionaire investor Mike Novogratz has a plan to keep riding the crypto wave — buying Facebook stock and shorting the five-year Treasury, Bloomberg reports.

Novogratz sees Facebook as a strong bet as the company prepares to launch its Novi digital wallet later this quarter, which according to him, would suddenly connect 2.4 billion people to the crypto economy. He’s shorting the five-year because central banks are putting too much money in play, which may cause the Fed to “flinch” when growth and employment roar back.

Justin Oh:

We’ve owned Facebook ($FB) stock on the ROIC Big Board for a long time because it was so cheap on fundamentals, despite having amazing growth. Novogratz has bought $FB before a potential Novi wallet rollout, which is a great upside catalyst to the stock as well.

Novogratz is also short 5-year yields (long 5-year treasury bonds) as a hedge against his crypto exposure. 

  • The rationale is that if the crypto markets sell-off, it’s probably in a “risk-off” scenario where money will flow into treasuries for safety (pushing yields down). 
  • It also implies that he believes a rising interest rate, and possibly inflationary environment, is good for the crypto market as a whole.

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What Ever Happened to Toms Shoes?

From being touted by Vogue and worn by Snoop Dogg and Anne Hathaway to being ravaged by private equity, millennial-focused brand Tom’s Shoes is trying to reinvent itself for Gen Z, Bloomberg reports.

Tom’s is putting an end to its sell-a-pair, donate-a-pair model, and steering into giving a third of its profit to social causes to appeal to the younger generation. It posted more than $200 million in revenue last year, down from nearly $300 million in 2019.

Justin Oh:

This is why even strong clothing and fashion brands should be owned with extreme caution. Just look at what happened to Quicksilver ($ZQK) and Billabong ($BBG). The same caution should be taken with retailers, as even Macy’s ($M) and Forever 21 have declined enormously in the last 5 years.

Popularity, trends, and fashion are fickle and fleeting and the brands with staying power are usually the more stable luxury brands.

In general, I don’t like the clothing and retail space, although we did catch some nice profits on Playboy ($PLBY) when we bought and sold it on the Big Board a while back.

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JPMorgan’s Dimon Says ‘This Boom Could Easily Run Into 2023’

JPMorgan CEO Jamie Dimon predicts that the period of economic recovery the U.S. is going through could last at least two years, Bloomberg reports.

Thanks to federal stimulus money, well-prepared banks against future loan losses and consumers saving money, the country could be on the verge of a “Goldilocks moment,” where growth is high and inflation is slow. But Covid-19 trends and a potential inflation spike remain threats.

Justin Oh:

As we discussed in our private live stream on Monday, the replay of which ROIC members can watch here, I, too, am relatively bullish on the market and the U.S. reopening for the next 1-2 years. 

It will undoubtedly be choppy, which only emphasizes the importance of carefully selecting our stocks (and other investments like crypto or real estate).

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Biden Says All U.S. Adults Should Be Eligible for Covid-19 Vaccine by April 19

President Joe Biden’s vaccine rollout continues to progress as he announced Tuesday “all U.S. adults should be eligible for Covid-19 vaccines by April 19,” WSJ reports.

It’s a notable jump from his previous target, May 1, as the world tries to snuff out the disease before variants spread. However, Biden urged residents to be patient because the shots are still in limited supply. Since he’s taken office, the U.S. has administered around 150 million shots and the pace is now around 3.1 million a day.

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Patreon’s Valuation Triples to $4 Billion as Platform Draws Creators, Fans

Creator platform Patreon was valued at $4 billion after its latest round of funding and has tripled its value since September, WSJ reports.

The company added $155 million this time around, led by Tiger Global Management. Patreon isn’t profitable yet and generates revenue by taking 5% to 12% of income earned from its users.

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Canva Leaps to $15 Billion Valuation as Revenue Doubles

Canva’s valuation is now up to $15 billion after a $71 million investment.

The company, which provides design collaboration tools, was previously valued at $6 billion in June. Canva said it posted more than $500 million in annualized revenue this year (+130%) and is profitable. It has more than 55 million monthly active users, an 83% increase from June.


What’s Going On:

Topps Is Going Public in $1.16 Billion SPAC Deal With an Eye on NFTs

Clubhouse Discusses Funding at About $4 Billion Value

Toshiba Gets Deal Proposal That Could Be Worth More Than $20 Billion

Samsung Electronics Expects Operating Profit Rose 44% in First Quarter

GM to Make Electric Version of Chevy Silverado Pickup

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