Coinbase: The IPO Deep Dive

Coinbase Global (NASDAQ: COIN) is one of the hottest deals coming to market in 2021 via a direct listing. Coinbase is the largest U.S. cryptocurrency exchange and has around 50 cryptocurrencies available for trading. They will be the first major crypto company to go public in US history, with initial trading set to commence on April 14.

The company first filed its Form S-1 Registration Statement in late March, indicating that they were in the process of taking the firm public. With roughly 114.9 million Class A common shares outstanding, the equity is currently anticipated to launch with a valuation of $67.6 billion based on the most recent financings conducted by the firm.

The business

Originally founded in 2012, Coinbase is viewed as one of the leading cryptocurrency exchanges enabling consumers to send and receive bitcoin, ethereum, and other digital currencies. The platform was founded on the basis that the current financial system is full of delays, high fees, unequal access and barriers to innovation, much like the original ideals of bitcoin and digital currencies at large. The founder, Brian Armstrong, envisioned a means for achieving economic freedom for every person and business.

Today, the platform has grown to have over 43 million retail users, 7,000 institutions, and 115,000 ecosystem partners across more than 100 countries. These three different user groups make up the firms customer segments.

  • Retail users: Coinbase offers primary financial accounts to retail consumers for what it deems the cryptoeconomy, where it provides a means to invest, store, spend, earn and use crypto assets.
  • Institutions: The firm provides the big wigs – i.e. hedge funds, money managers, and corporations – a platform to access crypto markets via trading and custody technology on what it refers to as a “deep pool of liquidity for transacting in crypto assets.”
  • Ecosystem Partners: Services wherein Coinbase provides developers, merchants, and asset issuers with the tech they need to enable the building of applications that utilize crypto protocols, enable the acceptance of digital currency as payment, and allow the participation in crypto networks.

So, how IS business?

The rising interest in bitcoin, and digital currencies as a whole, has done wonders for Coinbase. As the firm says directly in it’s S-1 filing, “Coinbase grows as the cryptoeconomy grows.” In the time since filing its registration statement, the company has released estimated results for the first quarter of 2021, the results of which are simply outstanding.

The boom in bitcoin has done wonders for Coinbase as a whole. The company last week reported that it has seen its verified users climb to 56 million, while monthly transacting users sits at 6.1 million. Assets on the platform meanwhile have grown to $223 billion, including $122 billion of assets of which are held by institutions, with those total assets on the platform representing 11.3% of all crypto asset market share.

Perhaps some context is needed here. Within the registration statement filed by the company in March, as of the year ended verified users sat at 43 million – which was 34.4% growth year over year – while monthly transacting users was 2.8 million, which was growth of 180% year over year. Assets on platform meanwhile grew from $17.0 billion in 2019, to $90.3 billion in 2020, and now just three months later that figure sits at $223 billion.

Revenues have grown by an equally impressive amount. In 2019, the company reported total revenues of $533.7 million. 2020 meanwhile saw total revenues of $1.28 billion. The first quarter of 2021? An astounding total revenue figure of $1.8 billion was recorded by the firm.

Net income followed a similar trajectory. 2019 saw net loss of $30.4 million. 2020 saw a net income of $322.3 million. The first quarter of 2021 meanwhile saw net income between $730 million and $800 million, with an adjusted EBITDA figure of $1.1 billion.

The continuance of such outstanding performance is, of course, dependent upon the continued interest in bitcoin and other digital currencies. The company to its credit pumps the brakes on excitement slightly here, indicating that it provides three possible scenarios for the overall performance of 2021 based upon monthly transacting users. While no hard guidance figures are provided, it provides a low, mid and high scenario that outlines 4.0 million, 5.5 million, and 7.0 million monthly transacting users which would directly correlate to transaction revenues. Estimates in dollar terms are not provided however.

Closing thoughts

What makes CoinBase so unique is that there isn’t a comparison that comes close to the cryptocurrency exchange when it comes to the public markets. Recent runs in stocks like Voyageur Digital may in some ways be the closest comparable on public markets who saw close to 1M users sign up on their platform in Q1, and trades at north of a $4B valuation.

Normally when anticipated big tech companies go public, there is always the “but”… “but they don’t make money.” This is the rare case we can’t say that. Thanks to the recent run and interest in CoinBase, the company is hitting the market with impressive profitability metrics and a growth profile that could make this stock go nutty.

Coinbase out of the gate is likely a simple bet. If you believe crypto is in a cycle and we are near the top, it’s likely not that attractive at this valuation. Conversely, if you think bitcoin and crypto are part of a new paradigm where demand for crypto will continue to grow; Coin base offers a cash flowing investment, with a high growth profile, that will put it on a trajectory to go much higher.

Information for this briefing was found via Edgar & the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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