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Coinbase IPO Guide: Don’t Sleep on This Crypto Freight Train

Coinbase Global Inc. has announced it will be going public by way of a direct listing on the NASDAQ under the ticker COIN on April 14.
In this comprehensive guide to Coinbase’s direct listing we are going to help you understand why Coinbase is the perfect vehicle to play the growth of bitcoin and the cryptocurrency market as a whole.

Check us out live on Youtube at 11:00am Est April 14th as we dive deep into the IPO as soon as the stock starts trading

What Does Coinbase Do?

To understand what Coinbase does, it is important to first understand the concept of cryptocurrency.
Cryptocurrency is a digital/virtual currency which uses cryptography, also called trustless technology to protect from counterfeiting.
Furthermore, this currency uses blockchain technology which allows all transactions to be saved on computers around the world avoiding the need for a central clearinghouse.
Most importantly for crypto enthusiasts, the currency is not issued or controlled by any government.
With that understanding, we can explore cryptocurrency exchanges.
Similar to a traditional exchange, a crypto exchange acts as an intermediary between buyers and sellers.
However, in this particular case it is for the purpose of facilitating transactions exchanging cryptocurrencies rather than traditional assets.
Typically, exchanges are set up so that buyers and sellers gain access to an online platform which allows them to then buy or sell holdings of certain cryptocurrencies available on that specific exchange.
This brings us back to Coinbase as it is in fact the operator of one such crypto exchange.
In its SEC filing, the company claims to be “a leading provider of end-to-end financial infrastructure and technology for the cryptoeconomy”.

How does Coinbase Make Money and How Much Did it Make in 2020?

The company provides its trading platform technology/services to ~56M users and ~7,000 institutions such as hedge funds, money managers and other companies.
It also works with approx. 115,000 “ecosystem partners” to provide certain additional functions such as the ability to securely accept cryptocurrencies as payment.
The primary source of the company’s revenue is from transaction fees (96% of total net revenue in 2020), which for retail users are between $0.99 and $2.99 depending on the dollar value of the transaction.
This means the more trading volume that is done on the exchange the more money the company makes.
This is similar to traditional financial/trading exchanges.
Interestingly, it seems trading volumes on Coinbase’s platform are directly related to cryptocurrency volatility (the ups and downs in the price of crypto).
This is the single largest near-term risk in owning Coinbase stock.
When crypto prices are up, more users sign up to buy crypto and they trade more often, both a benefit to Coinbase’s bottom line.
However, when crypto prices are down and interest is low, Coinbase has historically seen dramatic declines in revenue and profits.

Coinbase’s Trading Volumes

Source: Coinbase S-1

In 2020, Coinbase generated a total revenue of $1.3 billion as compared to $533.7 million in 2019 (a 144% increase), while adjusted EBITDA grew from $24.3 million to $527.4 million (more than a 20x increase).
Just last week, Coinbase released Q1/2021 estimated results as well as management guidance for the remainder of 2021.
Expected revenue for the quarter is ~$1.8 billion, that’s more than all of 2020 and adjusted EBITDA margin hit over 60%.
These results are eye-popping to be honest and show what a strong competitive position Coinbase is in at the moment.
Naysayers keep saying competition is coming, but Coinbase is still gobbling up more and more of crypto trading volume.
Coinbase’s heavy reliance on Bitcoin trading compared to other cryptocurrencies may play to its advantage as big institutions move into the crypto world.
The big guys are way too risk-averse to trade the smaller crypto coins and will likely exclusively trade Bitcoin and Ethereum for now until other coins mature.
This means Coinbase will gain additional market share as more institutions enter the game, assuming the traditional exchanges don’t ramp up their crypto offerings in the next 1-2 years.

Coinbase Share of Crypto Market

Source: Coinbase S-1

Risks to Continued Revenue Growth

While 2020 and the first quarter of 2021 showed absolutely smashing results, there are a number of risks that could significantly impact revenue growth and profits in the future.
  • Crypto Prices at All-Time Highs – Trading volumes and customer signups follow crypto prices. Though we are bullish on crypto prices longer term, the sector does go through downturns. Buying a crypto exchange with crypto prices at an all-time peak may not be the best decision.
  • Trading Fees way above Traditional Exchanges – Coinbase charges 50c for every $100 traded compared to only .01c for traditional exchanges. If competitors cut fees and big exchanges start offering crypto trading, it will eat into Coinbase’s profits and growth.
  • No competition from big exchanges – Coinbase is the only game in town if you want a trusted custodian to handle all of your crypto needs. If big legacy exchanges and brokers start offering crypto services it will eat into Coinbase’s profits and revenue growth.
To give you an example of how variable Coinbase’s revenue can be, in 2018 when Crypto prices fell 60% or more, Coinbase revenue was down 50% and this was with no compression in per-trade fees.
To be fair, Coinbase is the gold standard and the most trusted name in crypto exchanges which means it will capture an outsized amount of institutional business as the industry matures.
However, as larger players begin to trade crypto, per trade commissions will undoubtedly fall and could offset some of the gains in retail accounts and trading volume.

Coinbase Transaction Fees Holding Up So Far

Source: Coinbase S-1

Details of the Direct Listing

According to private market trading through March, Coinbase was valued at ~$100 billion up from only $7 billion back in September 2020.

The company has opted for a direct listing rather than an IPO which means two things.

  1. The company isn’t issuing new shares for cash, they are simply allowing employees and private investors who already own shares to sell them publicly.
  2. More shares are available to be sold on day 1. Coinbase has registered 44% of shares for sale, compared to a typical IPO where 15%-18% of shares can be sold on day 1.

While a direct listing avoids underwriting fees and dilution, it also means no lockups.

Lockups are a given length of time when shareholders cannot sell their shares. This helps keep supply low but also maintain stability among management interest.


With no lock-ups, existing shareholders can take advantage of day 1 price spikes to sell shares.

Historically this has kept a lid on direct listings and kept them from spiking 50% or even 100% from the last private trade like we see with IPO’s.

The aforementioned $90-100 billion valuation comes from per share prices in the range of $350-375, up from only $28 in the third quarter of 2020 before crypto prices spiked to all-time highs.

The company is listing 114,850,769 shares for sale or 63% of pro-forma basic shares outstanding (44% of pro-forma diluted shares outstanding, excludes only shares reserved for future issuance under equity comp plans).

Valuing Coinbase

Coinbase most definitely has competition on the public markets with crypto exchange eToro set to go public via a special purpose acquisition company (SPAC) and Voyager Digital listing on the Canadian stock exchange a little more than a year ago.

However, the beauty of having other crypto exchanges go public is that we can make some nice comparisons between Coinbase and the others to see if Coinbase is expensive or cheap given its growth and profits.

The guidance for 2021 provided by management, while not explicitly providing a revenue target for the year, did provide a low, mid and high estimate for average monthly transacting users (MTU).

Given that most of the company’s revenues stem directly from transaction volumes, this MTU is a good metric to ballpark expected revenues.

In Q1/21 6.1 million MTUs related to $1.8 billion in revenues for the quarter – that’s $295/MTU.

Using $295/MTU and the guidance of average MTUs for 2021 we get a low annual revenue estimates of $4.8B, a mid estimate of $6.5B and a high estimate of $8.3B.

Recall that in Q1 MTUs were at 6.1 million, and both the low and mid point guidance is below that value – which means on average the number of MTUs is likely to decline for the remainder of the year.

Using the mid-point of guidance to determine expected revenues, in the chart below we compare Coinbase results and expectations to those of eToro, Voyager and Charles Schwab.

Using forecasted revenue for 2021, we can see the market is pricing Coinbase at a nice premium to other exchanges.

Depending on if Coinbase hits the low, mid or high case guidance for 2021, the stock would be trading for 12x-21x future revenue at a $375 dollar stock price.

This is a significant premium to fellow crypto exchanges Voyager Digital, eToro and way higher than old-school stock brokerages like Charles Schwab.

2021 Price to Sales Multiple for Exchanges

Source: SEC Filings, Grizzle Estimates, Company Guidance

On an active user basis, Coinbase is also trading at a premium to peers.

Market Cap per Active Accounts

Source: Coinbase S-1, Grizzle Estimates

Investors are definitely giving Coinbase the golden seal of approval with the stock likely to trade at a premium to everyone else even though growth is not the highest in the group.

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Looking at user growth, Coinbase is putting up big numbers, but they still can’t compare to Voyager Digital, though that company is basically starting from zero as it opened for business slightly more than a year ago.

Number of Accounts

Source: Coinbase S-1, Grizzle Estimates

Voyager Digital Ltd. (CSE:VYGR) is the Canadian parent company of Voyager Digital Holdings in the US, which is a crypto-asset broker.

The company went public back in late 2019 and YTD has had a nice run up 570% year to date on the back of tremendous user and revenue growth.

Voyager Digital Stock Price

Based on the company’s most recent press release, the company currently has 1M verified users and 270,000 funded accounts, a minnow compared to other crypto players.

Funded Accounts as of March

Source: Coinbase S-1, Grizzle Estimates

In direct contrast to Coinbase, Voyager charges a monthly account fee and offers zero-commission trading.

This is the strategy many other cryto brokers are targeting to try and chip away at Coinbase’s dominance.

So Do You Buy Coinbase?

We’ll be straight, Grizzle is buying the Coinbase IPO all day.

You won’t find a more hyped direct listing than Coinbase.

Inflation is still picking up and governments are printing money like it’s going out of style, a perfect setup for Bitcoin prices.

Not to mention the upside potential as new coins find additional use cases which will drive more trade volumes.

Coinbase is the gateway to crypto and will remain the gold standard for institutions and retail investors. 

We think the risks from competition and fee compression are completely overblown over the medium term.

Coinbase cut fees 30% in 2019 and revenue still doubled. 

These are concerns for another day.

When crypto prices inevitably go through another downturn, Coinbase will see revenue and profits fall considerably and the stock price will take a hit.

But the setup for the crypto market as a whole could not be better, and Coinbase is the leveraged way to play the future of money.

Buy it and don’t look back. 

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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Categories: IPO Guides
Scott Willis: Scott has over 12 years of institutional investment management experience analyzing both debt and equity securities. He has held senior investment research roles at Credit Suisse, and TD Asset Management. His core areas of investment coverage at Grizzle include marijuana, energy and technology. Scott is a CFA charterholder and has been featured on Bloomberg, CBC, CNBC and Macleans.
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