The IPO (initial public offering) of cryptocurrency exchange Coinbase could go off with a huge bang when it lists stock on Nasdaq next week (14 April), with some estimating the company will command a $100 billion valuation.
The company won’t go public with a normal IPO. Rather than using brokers Coinbase is instead planning a direct listing, which will allow current investors to sell their shares to new investors on the day.
EXPLOSIVE GROWTH
Coinbase is the largest cryptocurrency exchange in the US, providing a platform for investors to buy, sell and store Bitcoin and about another 50-odd cryptos.
It lets investors store cryptos in its popular Wallet service for free, but charges dealing and margin fees, with several other lines of business in the pipeline, such as trialing a crypto debit card with partner Visa.
Coinbase has given investors a flavour of its financial clout by publishing its estimated 2021 first quarter earnings. Highlights included:
Coinbase reported an estimated $1.8 billion Q1 revenue, a near 10-fold jump from last year’s $191 million
Approximately $730 million to $800 million net income, versus $32 million in Q1 2020
$335 billion in trading volume
6.1 million monthly transactions from 56 million verified customers
It is easy to see why the IPO is capturing enormous interest as exponential growth will do that, as was the case with recent US IPOs like Snowflake, DoorDash, Airbnb and Roblox among others.
But investing in the stock is not a one-way street and there are risks investors should know about. For a start, Coinbase has plans to spend billions on scaling its platform and driving marketing in 2021 and beyond, which will cap financial performance.
There is also the huge volatility in Bitcoin and other cryptos. Bitcoin ended 2020 worth $28,990, topped $60,000 in March, and today trades at $57,770. In those three months-plus the Bitcoin price has fallen more than 15% three times.
MASSIVE UPS AND DOWNS
Coinbase has admitted that MTU, or monthly transacting users, trading volumes, and therefore transaction revenue fluctuate, ‘potentially materially,’ with Bitcoin price and crypto asset volatility. This revenue unpredictability in turn ‘impacts our profitability on a quarter-to-quarter basis.’
Another major talking point going forward will be institutional adoption. As management noted, ‘meaningful growth in 2021 driven by transaction and custody revenue given the increased institutional interest in the crypto asset class’ is expected, but only if banks, payment platforms and other large financial institutions continue to accumulate cryptoassets in the coming quarters.
If that plays out as Coinbase hopes, the company will be a major beneficiary, but it remains a sizeable if at this early stage.
Coinbase stock will soon offer investors brave enough to enter the Bitcoin and cryptocurrency world a way to invest beyond buying cryptos themselves, for good or bad.
