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Coinbase Decides on a Direct Listing Instead of a Traditional IPO

By Matthew Frankel, CFP® - Jan 28, 2021 at 5:31PM

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The cryptocurrency exchange could be valued at more than $50 billion.

Leading cryptocurrency exchange Coinbase announced its intention to go public in December, but we just learned that it won't be using the traditional IPO process, nor will it go public through a special purpose acquisition company (SPAC) like many other fintech companies have done recently.

Instead, Coinbase plans to use a direct listing. If you aren't familiar with the term, a direct listing is a process in which a company doesn't issue any new shares or raise any new capital -- it just lists its existing privately held stock on a public exchange.

Stacks of coins with the bitcoin symbol.

Image source: Getty Images.

Why is Coinbase using a direct listing?

Direct listings are somewhat unusual, but there have been several high-profile companies that completed direct listings in recent years. Spotify (SPOT 2.20%) and Slack Technologies (WORK) both went public through direct listings, and a recent example was the much-anticipated Palantir (PLTR 1.49%) listing.

There are some big benefits to direct listings for both companies and their investors. Direct listings are more economical, with fewer investment-banking fees to pay. For investors, it levels the playing field with the Wall Street investment banks. Take the recent Airbnb (ABNB 1.75%) IPO for example. The stock was priced at $68, but by the time it opened to retail investors, it was trading for $146. With a direct listing, everyone gets the same opportunity to buy. 

Reports indicate that shares of Coinbase have been selling on the private market at a valuation of about $50 billion, sharply higher than the $8 billion valuation it had in a 2018 funding round. But there's speculation that the company could attain a valuation of as much as $75 billion in the private market, and given the recent IPO market activity, that could even be a conservative estimate for when Coinbase actually hits the public market.

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Spotify Stock Quote
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Slack Technologies, Inc. Stock Quote
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Palantir Technologies Inc.
$8.16 (1.49%) $0.12
Airbnb, Inc. Stock Quote
Airbnb, Inc.
$116.44 (1.75%) $2.00

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