I have not seen this kind of manic anticipation for an IPO since Facebook went public. Coinbase, which all the pundits are calling a "virtual" slam-dunk goes public shortly. Coinbase will do so following an incredible Q1 report.
The buzz has reached a fevered pitch after the leading crypto exchange released incredible Q1 results. Given the astronomical gains seen in Bitcoin, Ethereum, and even Bitcoin Cash, strong quarterly numbers certainly aren’t a shock. However, COIN's growth is astonishing and the report sets the stage for an electric debut.
COIN's metrics are impressive across the board and include the following highlights:
Revenue, primarily through transaction fees, surged by 844% yr/yr to $1.8 bln.
Verified users up to 56 mln from 43 mln for the year ending December 31, 2020.
Monthly Transacting Users (MTUs) up to 6.1 mln from 2.8 mln for the year ended December 31, 2020.
Net income is estimated to be $730-$800 mln, easily surpassing the net income of $127 mln that COIN generated in all of FY20.
Outside of these incredible numbers what also jumps out is the outlook that COIN provided, which seems to be quite cautious.
COIN didn't provide specific revenue or EPS guidance for the year, but it did lay out three scenarios for MTU growth.
Low:
Average 2021 MTUs of 4.0 million. This scenario assumes a significant decrease in crypto market capitalization, similar to the decrease observed in 2018, and low levels of crypto asset price volatility thereafter. In this scenario, we assume MTUs will decrease in a corresponding manner and end 2021 at similar levels to Q4 2020.
Mid-range expectation:
COIN projects average MTUs of 5.5 mln for FY21, representing a slight decline from 1Q21 levels. Even in COIN's best case scenario, MTU's are only forecasted to increase to 7.0 mln from the current 6.1 mln level.
High:
Average 2021 MTUs of 7.0 million. This scenario assumes an increase in crypto market capitalization and moderate-to-high crypto asset price volatility.
It is possible that COIN may simply acting conservatively.
Another possibility, though, is that COIN is anticipating heightened volatility in Bitcoin and other cryptocurrency prices following the huge gains achieved over the past year.
COIN highlighted how major price cycles can significantly impact MTUs, trading volume, and transaction revenue. According to COIN, these cycles have typically range from two to four years, which does suggest that this current cycle still has room to run. That said, considering how rapidly and substantially Bitcoin has surged, perhaps this cycle will be shorter in duration.
A possible correction in crypto prices isn't the only risk tha we should be aware of. The growing popularity of cryptos and their acceptance of them by major players and institutions is creating a highly competitive market.
For example, during PayPal's (PYPL) most recent earnings conference call, CEO Dan Schulman highlighted the company's plans regarding cryptocurrencies. PYPL, which already offers the ability to buy, hold, and sell some cryptocurrencies, will soon allow cryptocurrencies to be used as a funding source to make payments. Additionally, Square (SQ) facilitates Bitcoin transactions and plans to make a strong push into the crypto market.
Beyond that, major institutions such as the city of Miami and sports leagues/teams have offered their employees payments in crypto/bitcoin. Moreover, Tesla, which is a cult in and of itself, has started accepting Bitcoin payments for their cars.
All risks aside, COIN is in fact about as close to a virtual slam-dunk as you can get for a hugely successful IPO. Since the company is going public via a direct listing, the COIN IPO reference price is $250.00. That offers a discount to their latest round of private capital raise. That said, it’s all but assured the price will be significantly higher by the time the IPO actually trades.
COIN recently traded at roughly $345/share in private markets, implying a market cap north of $85 bln. Based on the fervor surrounding the company, it's a pretty safe bet that COIN will open for trading above that $345 price, pushing its valuation to the $100 bln mark.
Incredible Stats:
Coinbase has more than 4x the number of users of Robinhood.
In the first quarter of 2021, Coinbase did more revenue than in all of 2020.
COIN is profitable to the tune of $730m-$800m.
COIN is storing over $200 billion of crypto which is about 11% of all the crypto in the world.
Half of the stored crypto is from institutional customers.
Roughly about half of COIN trading volume is from institutional customers.
Kevin Durant and his business partner Rich Kleiman invested in Coinbase at a $1.6 billion valuation. This gives them an approximate 65x ROI.
1700 employees were surprised by the company with shares ahead of the IPO.
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