Coinbase Global Inc. became the most valuable U.S. exchange Wednesday amid strong demand for the cryptocurrency platform’s newly public stock.
Shares of Coinbase
began trading at $381 a share at 1:25 p.m. Eastern on Wednesday, after a $250 reference price was established Tuesday afternoon, and pushed as high as $429.54 before ending its first day of trading at $328.28. Coinbase held a direct listing instead of a standard initial public offering, meaning that the company didn’t raise money through the process of going public and doesn’t have a traditional IPO price against which to measure the stock’s first-day rally.
At the closing price, Coinbase was valued at $85.8 billion on a diluted basis. CME Group Inc.
the next-most-valuable U.S. exchange, has a market capitalization of about $74 billion.
Coinbase’s direct listing comes at the “perfect” time for the platform given booming demand for crypto trading and record-high prices for bitcoin
said Reena Aggarwal, a finance professor at Georgetown University’s McDonough School of Business. She expects the company to draw broad interest including from exchange-traded funds that want exposure to the world of cryptocurrencies but can’t actually own bitcoin.
The company anticipates that it will report first-quarter revenue of about $1.8 billion, more than 800% above what it saw in the year-prior quarter. Coinbase also expects to post net income of $730 million to $800 million, compared with the $32 million it reported a year earlier. The company has 56 million verified users.
While the company is clearly benefiting from surging interest in cryptocurrencies, experts predict that Coinbase’s stock will be volatile given its ties to crypto trading activity and the price of popular crypto assets.
“To be prudent, we are assuming that the value of cryptocurrencies will continue to be cyclical, so we are assuming Coinbase’s 2022 revenues will be >35% lower than 2021,” MoffettNathanson analyst wrote in a note to clients Tuesday. She argued that “it is quite likely that we are currently nearing a peak,” with Coinbase’s expected first-quarter revenue alone standing 40% higher than what the company posted for the entirety of 2020.
Still, Ellis opted to rate the stock a buy with a $600 price target, calling the stock an “extraordinarily rare asset” that was admittedly “not for the faint of heart” but rather for investors that have a “multiyear” time horizon for their investment.
Coinbase generates the bulk of its revenue from trading in its crypto wallet, and another question concerns the sustainability of the company’s fee structure. The company’s fees are “an order of magnitude higher” than what U.S. stock exchanges and brokerages can charge, according to Bernstein analyst Harshita Rawat, who expects some pressure on this part of the business.
“Currently, companies such as Coinbase (and smaller peers such as Gemini) are able to charge higher fees (vs. peers) for products geared towards newer/less advanced users to crypto – as they differentiate themselves on ease-of-use for new users,” Rawat wrote, while predicting that it may ultimately be difficult for the company to maintain its current fee levels amid a competitive market for crypto trading.
Aggarwal echoed some of these concerns as she expects the company to face competition from “from crypto exchanges and also the traditional exchanges,” though she thinks that Coinbase “will continue to have a competitive advantage” as there’s room for fees to come down without dramatically crashing.
She also highlighted a smaller part of Coinbase’s business—its role as a custodian that holds crypto assets for companies—as an intriguing part of the company’s strategy and one that differentiates Coinbase from traditional exchanges that don’t typically serve this function.
“Even though the trading side might be volatile, the custodian aspect will be stable,” Aggarwal said, noting that the custody business ties companies to Coinbase for potential future trading activity. More companies could become comfortable using this service now that Coinbase is public, she added.