FTX Investors Seem To Imply That Nothing Much Has Happened In Crypto Since The Start Of 2022

The private crypto trading firm FTX, which was founded and is led by 30-year old wunderkind Sam Bankman-Fried, is reportedly in talks with investors to raise US$1 billion in new capital. This funding round, which would value the company at around US$32 billion, suggests that FTX is worth about the same as it was in January 2022 when US$400 million of new funds were raised at the same implied overall company valuation.

In October 2021, FTX was valued at US$25 billion when it raised US$420 million from investors. Prior to the current contemplated funding, FTX has raised about US$2 billion from venture capital investors.

The basis for FTX’s impressive valuation is apparently its full-year 2021 results which the company shared with some media outlets in mid-August. According to those documents, FTX’s 2021 revenue was US$1.02 billion, up more than 1,000% from 2020 revenue of US$89 million. Operating income was US$272 million in 2021, likewise up dramatically from US$14 million the previous year. Somehow, FTX’s 2021 net income was US$388 million. Its cash balance at year-end 2021 was approximately US$2.5 billion. FTX’s revenue in 1Q 2022 was about US$270 million, according to a company-prepared investor deck (not accounting statements).

Keep in mind that the 2021 results were achieved in an extraordinary crypto bull market. For perspective, consider the abrupt change in the fortunes of Coinbase Global, Inc. (NASDAQ: COIN)another crypto trading platform, from 2021 to 2022. Its 2021 revenue, recurring net income, and operating cash flow were US$7.4 billion, US$3.6 billion, and US$10.7 billion, respectively. In 2Q 2022, in the midst of the downturn, those figures were US$1.2 billion, negative US$430 million, and negative US$830 million, respectively.

FTX’s results thus far in 2022, and particularly in 2Q 2022, have not been disclosed, but it is difficult to image they do not follow the same general trend as Coinbase’s.

Coinbase’s enterprise value (EV) was in the vicinity of US$50 billion in 1Q 2022; it is now around 70% lower at US$14 billion. That means in early 1Q 2022, Coinbase traded at an EV-to-2021 revenue multiple of about 7x, and it is now valued at just over 2x. Amazingly, FTX was valued at about 32x its bull market 2021 revenues in January, and it apparently still commands that eye-watering valuation.

FTX’s valuation is difficult to understand given the correction in cryptocurrencies, as well as in the overall stock market. It must be acknowledged, however, that a number of well-known investment funds — including the giant Singaporean sovereign wealth fund Temasek, the Softbank Vision 2 fund, and Tiger Global — participated both in early FTX investment rounds and in the January 2022 capital raise.

Information for this briefing was found via CNBC and the sources 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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