It's no secret that leading cryptocurrency exchange Coinbase has been planning to go public, but as its initial filing was confidential, we didn't know too much about the business itself. However, Coinbase publicly filed for its upcoming direct listing recently, and we now have some important information about the company's customer base, revenue, and yes -- profitability.
Here's a rundown of some of the most important information investors should know ahead of Coinbase's direct listing, and what you should keep in mind before deciding to invest.
Trading volume is impressive, but the current number could be much more
According to Coinbase's IPO registration, there had been $456 billion in trading volume on Coinbase since its inception, and $90 billion of assets were held on the platform. From 2018 to 2020, quarterly cryptocurrency trading volume more than doubled.
However, these numbers have likely grown significantly. These figures were as of the end of 2020. Not only has Bitcoin (BTC 1.52%) surged in price by 72% since the start of 2021, with other cryptocurrencies making similar moves, but investor interest (and therefore trading volume) has increased, as well.
Millions of people rely on Coinbase for their crypto needs
As of Dec. 31, 2020, Coinbase had 43 million verified users on its platform, 2.8 million of which were monthly active users. Considering that Coinbase had about 13,000 users at the end of 2012, to call this growth impressive would be a major understatement.
Coinbase also has 7,000 institutional users such as hedge funds and money managers, as well as 115,000 ecosystem partners such as merchants. It's a truly worldwide platform, as its user base extends to more than 100 countries.
How has Coinbase's success translated to revenue and profits?
Through the end of 2020, Coinbase generated more than $3.4 billion in revenue. The main source of the company's revenue (96% in 2020) consists of transaction fees on trades. Throughout its history, Coinbase has earned revenue equivalent to about 0.75% of its trading volume.
For the full year 2020, Coinbase generated $1.3 billion in revenue and was profitable, earning net income of $322.3 million. This was a huge improvement over 2019, when revenue was about $534 million and the company lost about $30 million.
How much larger could Coinbase's business get?
I mentioned that Coinbase has 2.8 million monthly active users, and its median quarterly trading volume in 2020 was $38 billion. These both sound like huge numbers (and they are), but consider that the cryptocurrency market is $1.5 trillion in size, including more than $900 billion in Bitcoin alone. And if cryptocurrencies end up rising in price (some analysts have said Bitcoin could ultimately reach $500,000 or more), it could get much larger.
With about 3.5 billion people worldwide with a smartphone, which Coinbase considers its addressable market, the user base could ultimately multiply many times over if Bitcoin or other cryptocurrencies achieve widespread adoption, as many experts predict.
Should you buy the Coinbase IPO?
We don't yet know exactly when Coinbase's direct listing will happen or what the company's valuation will be. However, there have been reports that recent private market transactions have valued the company at more than $100 billion, so it's fair to say that this won't be a cheap stock.
Assuming a valuation of $100 billion, Coinbase will trade for about 77 times trailing-12-month sales and about 310 times earnings. Its growth has certainly been impressive, and if it continues at the pace of the past few years, such a high valuation could certainly be justified.
However, like any growth-focused IPO, Coinbase is likely to be a volatile stock at first, so investors should be prepared to ride out some ups and downs as the company finds its legs in the public markets.