Coinbase's IPO, scheduled for April 14, has already been dubbed one of the most important IPOs of 2021, not only because the company have been valued at $100 billion, and not only because anticipation of the event is pushing crypto prices solidly higher, but because it is helping to demystify and normalize the world of cryptocurrency and solidify cryptocurrency trading as a trend that is here to stay.
Coinbase’s IPO is very timely, with the leading cryptocurrency Bitcoin hitting a new record high today above $62,500 per coin.
According to the company's website, Coinbase operates cryptocurrency accounts for some 43 million users and generated $1.8b in Q1 2021 alone, statistics that contribute directly to the company's impressive valuation. In contrast, the Nasdaq has a market cap of $25 billion and the Intercontinental Exchange Inc (NYSE: ICE), the parent company of the New York Stock Exchange (NYSE), has a market cap of $65 billion. Hong Kong Exchanges and Clearing Limited, the operator of the world's third-biggest stock market, is valued at $76 billion.
Founded in 2012, Coinbase is a secure online platform used for buying, selling, storing, and transferring digital currencies. The company was among the first to provide a centralized place where people could convert digital currency to their local currency, and vice versa. Among the cryptocurrencies available at Coinbase are common cryptos like Bitcoin, Ethereum, Dogecoin, and XRP, as well as lesser-known options such as Dai and Zcash.
Cryptocurrency storage (also known as a cryptocurrency wallet) can be done in a vault with time delayed withdrawals to provide the most secure environment possible.
Should You Buy the Coinbase IPO?
Investors taking advantage of Coinbase's IPO price (with the ticker COIN) may find some quick gains, as all crypto ETFs will, at some point, be required to maintain a holding of COIN. ARK Investments, headed by Cathie Wood, has also expressed interest in picking up shares of the stock for the firm's ARK Fintech Innovation Fund (ARKF) and its Global X FinTech ETF (FINX).
On the technical side, COIN is poised to behave like other recent blowout IPOs Snowflake and Roblox, because the company is already profitable and has been able to grow its revenue faster than its costs. Most of this income was generated by transaction fees for cryptocurrency trading, which was fueled by the increasing popularity of the crypto market. Though a lull in volatility may cause volumes to decline which would cause Coinbase's revenue to decline, crypto bulls predict that popularity will only continue to grow. Bears, on the other hand, argue that eventually the novelty of crypto trading will wear off, which may threaten Coinbase's bottom line.
Coinbase has some 12% of the world's cryptocurrency sitting on its platform, which quite impressive. If all goes according to plan, the company's $100 billion valuation is 77 times sales, which is arguably not unreasonable in today's financial climate (Tesla, for example, traded at 200 times revenue at its peak). Detractors will argue that the tech bubble is rapidly expanding, and that it may burst at any point, a move that could shake COIN to its core, since expensive stocks tend to get hit the hardest during a correction.
According to some estimates, Coinbase will need to increase its revenues by 50% annually while keeping free cash flow stable to reach a $100 billion valuation by 2027. Over 96 percent of Coinbase's revenue comes from transaction fees, and Coinbase's services are already on the expensive end of the spectrum. Competitors may continue to gain market share, and new services may crop up to threaten Coinbase's business model, which may bring the company's stock price down. Regulatory infractions or fines might also have a direct impact on the company's bottom line and on its stock price.
Trading any IPO comes with risks, and traders should make sure to understand the full picture before deciding if the trade in alignment with their long-term financial goals.