Given the astounding growth of cryptocurrencies like Bitcoin over the past year, it’s no wonder that the upcoming Coinbase (NASDAQ:COIN) IPO is one of the most anticipated market events of 2021. As the largest US cryptocurrency exchange, Coinbase generates massive revenue from transaction fees on its platform and has already given investors insight into its huge earnings potential. It might just be a company that lives up to the hype surrounding its market debut.
While there is certainly an element of unpredictability with this business thanks to the volatility of cryptocurrency prices, that likely won’t deter investors from grabbing shares of the company when it goes public via a direct listing on Apr. 14. Coinbase is certainly an intriguing player in the burgeoning cryptocurrency industry, which is why we’ve put together a list of 3 things for investors to know about the company ahead of its big debut.
1. The First US Cryptocurrency Exchange to be Publicly Listed
Cryptocurrency has come a long way in a very short time. These digital assets are kept on a shared ledger known as a blockchain and have increased in popularity largely due to the meteoric rise in the price of Bitcoin. With more and more businesses and financial institutions getting on board the cryptocurrency train, it’s easy to see the potential in a company like Coinbase. It offers users a simple and safe way to buy, sell, and hold cryptocurrencies on its platform. Coinbase has also developed an advanced crypto trading platform called Coinbase Pro that cryptocurrency enthusiasts love.
The company generates revenue by charging transaction fees every time its users buy or sell a cryptocurrency on its platform. It also makes money from things like margin fees, custodial services, and a rewards credit card program. The company’s platform enables approximately 43 million retail users, 7,000 institutions, and 115,000 ecosystem partners to participate in the crypto economy. Since this is the first major US cryptocurrency exchange to be publicly listed, it could be a major step towards the widespread adoption of digital currency and will go a long way towards legitimizing the industry. This is one of the big reasons why the company’s debut is attracting so much attention.
2. Eye-Catching Earnings
Most high-growth companies that make their market debuts are a long way from reaching profitability. This is another big reason why Coinbase stands out. The company has already delivered some eye-catching earnings that could send the stock price soaring on Apr. 14. Coinbase had a very strong 2020, during which it generated $1.1 billion in revenue and $322 million in net income. Those were solid numbers for a company that has only been around since 2012, but what’s even more impressive is that the company has already eclipsed those figures in the first quarter of 2021.
Coinbase recently provided investors with its estimated Q1 earnings numbers that likely boosted the company’s valuation by billions. The company reported $1.8 billion in Q1 revenue, which topped its revenue for the entirety of 2020. Coinbase also saw $355 billion in trading volume in Q1, which surpassed the entire trading volume of last year. Total assets on Coinbase’s platform increased from $90 billion to $223 billion, which represents 11.3% of the crypto-asset market share. It’s also worth noting that the $223 billion in assets includes $122 billion from institutions, confirming that Coinbase is becoming a trusted name among sophisticated investors.
3. Direct Listing over Traditional IPO
Coinbase will go public with a direct listing on April 14th and will trade on the Nasdaq under ticker symbol COIN. If you aren’t familiar with direct listings, it’s probably because very few companies use that route to go public. Direct listings are unique in that no new shares are created when the company goes public, only the outstanding shares are sold with no underwriters involved.
You might be wondering why Coinbase is going public with a direct listing over a traditional IPO. This likely has to do with money, since the company will be able to go public without paying huge fees to investment bankers. There’s also the possibility that Coinbase wants to avoid share dilution or lockup periods. Since the company doesn’t have to worry about generating interest and demand for its shares, one could argue that a direct listing does make sense.
Final Thoughts
While Coinbase is one of the most exciting companies to go public in recent history, it’s important to understand that the hype surrounding its market debut could lead to an extremely high valuation. Some analysts value the company around $80 billion, while other estimates are as high as $100 billion. Keep in mind that that market debuts are normally volatile and that this stock will likely mimic the price movements of major cryptocurrencies like Bitcoin. If you are interested in adding shares, it might pay off to wait until the initial hype dies down and the stock has some trading history before you decide to invest.