This $110b range shows the risk of investing in the fast-moving cryptocurrency industry
In a sign of the extreme range of opinions on the crypto space and ecosystem, not to mention the uncertainty and risk of investing in this new industry, analysts are estimating values for Coinbase ($COIN) stock listing at anywhere from $230 billion to one-twelfth that amount.
This is wild.
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 will trade on the Nasdaq under the ticker $COIN on April 14, and the event is increasingly seen as a pivotal moment for the fast-moving industry.
The Delphi Digital report
The price of COIN will fluctuate greatly depending on forward guidance and growth expectations as well as the valuation multiple it winds up commanding. 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.Delphi Digital
Retaining a high valuation will depend entirely on Coinbase’s ability to attract millions of new users. Verified users grew 23% between 2018 and 2019 and then another 34% between 2019 and 2020, reaching 43 million in Q4 of 2020. 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.
The New Constructs report
The New Constructs report, however, is less flattering toward Coinbase’s IPO. It says 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. 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.New Constructs
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.