Coinbase is Going Public Today; Here’s What to Expect

Coinbase, the largest cryptocurrency exchange in the US, is set to go public today through a direct listing of 114,850,769 shares on the NASDAQ with an initial valuation of $100 billion. It plans to trade under the ticker COIN. Goldman Sachs is leading the listing.

The event makes Coinbase the first cryptocurrency company to become publicly listed, creating another onramp to digital assets adoption, particularly for certain investors, like financial advisors and US equity mutual funds, who haven’t yet been able to take advantage of them. 

“If you want to invest in bitcoin or other digital assets, the best way to do it is to invest in those digital assets themselves,” said Jeff Dorman, Arca’s chief investment officer. “But fixed income industries can’t do that.”

“Coinbase is the first pure play company that actually has revenue growth generated specifically tied to the price of digital assets. If you’re an equity mutual fund or financial advisor who has very strict choices with what you can put your clients into, Coinbase is the first opportunity for a lot of them. This opens the door for a whole new investor base that to date hasn’t had access to the market.”

Coinbase was founded in 2012 by Brian Armstrong, a former Airbnb engineer, and Fred Ehrsam, who was previously a trader at Goldman Sachs. Ehrsam left Coinbase in 2017 and is now a co-founder of the blockchain-focused venture capital firm Paradigm.

Last week the company published higher than expected first quarter earnings that included $1.8 billion in revenue, $1.1 billion in adjusted EBITDA and $730 to $800 million in net income. The company holds $223 billion in assets on the platform, representing 11.3% of crypto asset market share with some $122 billion coming from institutions. 

Opening day

It’s hard to predict where the new COIN stock will land today and there’s very little historical precedent to draw upon. Palantir, Slack and Spotify are among the major companies that have gone public through a direct listing, but that’s about it. 

The market is used to initial public offerings being “completely mispriced” and going up 50% or even 100% on day one, but that typically doesn’t happen with a direct listing because it takes a little bit more time for that that equilibrium to settle, Dorman said, adding that it could take a week or even a month.

Nasdaq has given Coinbase a reference price of $250 a share. Dorman said he’s seen price targets between $440 and $600 per share from smaller investment banks and research shops, but he anticipates trading will begin trading high.

“Given that $100 billion dollar market cap number out there, and given there’s going to be a fair amount of retail interest probably on this, my guess is it probably comes around $500 a share,” he said. “But it might take 48 hours to get there… it’s just a little slower process. You probably just have a little bit of a gestation period where there’s a price discovery as people try to figure this out.”

Arca estimates Coinbase will make between eight and $10 billion of revenue, which puts a very conservative 10 to 12 times price to sales ratio around the $100 billion market cap. 

A rising tide

Regardless, the listing will open up investors’ eyes and make them realize there are companies with serious cash flows getting huge multiples in the equity markets, because they recognize that digital assets are the future of finance.

“You just slowly trickle down from there and pretty soon everybody’s using digital assets,” Dorman said. “First you buy the stock of the blue chip company then you say, well what does that company do? They trade digital assets. Okay let me go buy bitcoin. What else can they do? Then they go buy ether or other assets that you’ve probably never heard of that are available on Coinbase.”

Coinbase holds $90 billion in assets on its platform and supports trading of more than 40 assets. It serves 56 million individual users (including 6.1 million monthly transacting users) and 7,000 institutional customers, and it makes money by charging fees for its brokerage and exchange.

The listing is also expected to set off a wave of digital asset companies like BlockFi and Kraken looking to tap the public equities.

“If Coinbase warrants the multiple that it’s about to get, it’s going to raise the valuations of every company in this industry,” Dorman said. “I certainly expect more and more of these companies to go public, but most of them don’t have anywhere close to the customer and revenue growth that Coinbase has.”

Robinhood may be the biggest beneficiary of whatever price COIN ultimately settles at, Dorman said. The company announced last week it now has 9.5 million customers trading digital assets, compared to 1.7 million in the fourth quarter of 2020. And it only supports trading of seven digital assets.

“A rising tide lifts all boats,” Dorman said. “You’re seeing it across all the crypto stocks. I have a list on my Bloomberg page right now—15 equities that are all up anywhere between 400% and 4,000% over the last six months.”