As Coinbase Listing Nears, Analysts Pitch Valuations From $19B to $230B

In a sign of the extreme range of opinions on cryptocurrencies, not to mention the uncertainty and risk of investing in the 12-year-old industry, analysts are estimating values for next week's Coinbase stock listing at anywhere from $230 billion to one-twelfth that amount.

New Constructs, an investment research firm, estimates the U.S. cryptocurrency exchange's valuation should be closer to $18.9 billion. Delphi Digital, a digital asset research firm, calculates a Coinbase valuation between $160 billion and $230 billion if the stock can command above-average price multiples. Earlier this week, the brokerage firm DA Davidson estimated the market cap at $90 billion.

Coinbase's direct listing will trade on the Nasdaq exchange under the ticker COIN on April 14, and the event is increasingly seen as a watershed moment for the fast-moving industry.

One crypto exchange, FTX, has even tried to capitalize on the speculative fervor around the Coinbase stock debut by listing a "pre-IPO contract" designed to allow market participants to bet on the initial share price. It's up about 16% for the month to date to a value of $499, implying a valuation of around $103 billion, assuming an estimated 266.2 million shares outstanding.

• “The price of COIN will fluctuate greatly depending on forward guidance and growth expectations as well as the valuation multiple it winds up commanding,” Delphi Digital wrote.
• The research firm also stated that “it’s not implausible that the stock could trade closer to 15-20 times forward sales, which would imply a roughly $172 billion-$230 billion total market value.”
• Maintaining high valuations will depend on Coinbase’s ability to attract millions of new users. Verified users grew 23% between 2018 and 2019 and another 34% between 2019 and 2020, reaching 43 million in Q4 of last year, according to Delphi. (That verified user count jumped to 56 million at the end of March 2021, according to Coinbase’s earnings call on April 6.)
• Growth in new users contributes to margin growth and overall profitability. Coinbase estimates $1.8 billion in total revenue for Q1 2021 on $335 billion in trading volume, the exchange said Tuesday.
• However, Delphi cautioned that COIN could be subject to market risk, especially if growth stocks continue to struggle relative to value peers. “Valuations for growth stocks are trading at significant premiums relative to historical averages,” writes Kevin Kelly, partner at Delphi.

According to the New Constructs report, however, Coinbase "has little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion."

• “The crypto markets are very young and we expect many more companies to compete for the profits Coinbase enjoys today. As the cryptocurrency market matures, we expect Coinbase’s transaction margins to drop precipitously.”
• “The 'race to the bottom' phenomenon that took place in late 2019 with stock trading fees will likely make its way to the crypto trading space. We expect Coinbase competitors to cut their trading fees to zero in an effort to increase market share.
• “Competitors such as Gemini, Bitstamp, Kraken, Binance and others will likely offer lower or zero trading fees as a strategy to take market share, which would start the same ‘race to the bottom’ that we saw with stock-trading fees in late 2019. Similarly, if traditional brokerages begin offering the ability to trade cryptocurrencies, they will most certainly cut down on the unnaturally wide spreads in the immature cryptocurrency market.”

According to New Constructs, Coinbase would need to produce compounded annual revenue growth of 50% over the next seven years. Yet, Nasdaq's greatest 10-year revenue growth rate was just 21%.

Assuming a rate of 21% and slight profit-margin compression, COIN shares would be worth just $18.9 billion, the report argues.

UPDATE (April 9, 21:36 UTC): Corrects the number of outstanding shares from 206 million to 266.2 million.