Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Cryptocurrency exchange Coinbase makes waves with direct listing

Margaret Giles  |  19 Apr 2021Text size  Decrease  Increase  |  
Email to Friend

The public offering at a glance

  • Ticker: COIN
  • Listing Date: April 14, 2021
  • Publicly Tradable Shares: About 114.9 million
  • Percentage of the Company Made Public: 44 per cent
  • April 14 Opening Price: US$381
  • April 14 Closing Price: US$328.28
  • Market Cap: US$85.78 billion

What is Coinbase?

Coinbase operates an exchange platform where users can securely buy, sell, and store 90 cryptocurrencies, including Bitcoin and Ethereum. The company offers subscription products and services to both institutional and retail customers in over 100 countries, though most of its revenue comes from the United States. Its offerings include cryptocurrency investing, a wallet for retail users, and custodial accounts for institutions. It also provides educational tools for users new to cryptocurrency, which fits with the company’s mission of making crypto more accessible.

What is significant about the public offering?

Coinbase went public with a direct public offering rather than a traditional IPO. With a direct public offering, the company doesn’t raise cash by selling new shares. Rather, Coinbase lets its stakeholders start selling shares at a market-driven price. Coinbase closed its first day of trading at a price of US$328.28 per share, making its valuation a whopping US$85.78 billion and putting the company on the list of 100 most valuable companies in the US.

Coinbase is already worth more than a number of prominent US exchange operators.

Coinbase market cap v major exchanges

The public offering may also be a major step toward the mainstream adoption of cryptocurrency. Coinbase is the first cryptocurrency company to publicly list, which could lead others to follow suit. With a successful public offering and massive valuation, Coinbase makes it harder to dismiss cryptocurrencies as fringe investments. Further, the public listing allows investors to gain indirect exposure to cryptocurrencies by purchasing Coinbase shares.

In 2020, 96 per cent of the company’s revenue came from transaction fees earned from trades on its platform by institutions and individual users. As a result, the company’s performance is heavily dependent on the prices of the cryptocurrencies it gives users access to, particularly Bitcoin and Ethereum.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

In addition to its size, the company’s profitability also sets Coinbase apart. The company’s net income in 2020 measured US$322.3 million, compared with a net loss of US$30.4 million in 2019. The cryptocurrency boom of the past year has fueled major revenue gains for Coinbase. In the first quarter of this year, the company brought in $1.8 billion in revenue, up from $190.6 million in the same quarter in 2020.

Bitcoin price

How Coinbase can benefit from three industry trends

Analysts at PitchBook, a Morningstar company, have identified trends that will likely drive growth in the digital assets space, which includes cryptocurrency exchanges like Coinbase. Among these trends, three stand out:

  • Investor speculation: Cryptocurrency exchanges have experienced strong volume as digital asset prices fluctuate. Continued speculation around future value of digital assets will likely continue to drive investment and trading.
  • Growth of digital economy: The continued digitisation of economies and the need for secure and rapid electronic movement of assets or payments could drive adoption of digital asset systems.
  • Improved digital asset management: Cryptocurrency exchanges and digital asset management systems continue to improve, increasing the willingness of more-traditional investors to allocate resources to this asset category.

Who competes with Coinbase?

Coinbase has enjoyed strong revenue growth and a surge in users over the past 12 months, but the company will likely face challenges in its pursuit of future growth, says PitchBook analyst Robert Le. “We believe Coinbase will be hard-pressed to maintain its growth path as many competitors such as established incumbents like PayPal (PYPL) and Square (SQ) or crypto startups seek to attract Coinbase’s customers by lowering transaction fees,” Le says.

In addition to fee pressure from its competitors, Coinbase may also face challenges in terms of its revenue concentration. As most of the company’s revenue comes from transaction fees, which are concentrated around Bitcoin and Ethereum, Coinbase will be at the mercy of notoriously volatile asset prices.

Despite these risks, Le sees opportunities for Coinbase.

“The company is well-positioned to offset competitive and concentration risks by continuing to diversify its institutional business, which includes prime brokerage and custodial services,” Le says.

Coinbase’s prospectus acknowledges the company’s current dependence on transaction fees and asset prices and identifies investing in diversification as a means of growth.

is a data journalist for Morningstar.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend