On the tide of another “cryptohype”, a lot of people started thinking of investing in digital currencies. Different sources confirm an impressive growth of requests for purchasing graphics processing units, ready-to-use crypto yield farms for mining, and applications for account opening on cryptoexchanges. However, some investors are afraid of investing their money straight into cryptocurrencies due to the clouded outlook of many coins. Still, it’s pretty hard to overcome the appetite for making money, that’s why earlier there were recommendations to buy stocks of leading manufacturers of hardware for mining, such as Nvidia or AMD.
In the nearest future, everyone, who wants to profit from cryptohype, will have one more opportunity for this – the Coinbase cryptoexchanges filed an S-1 IPO form at the NASDAQ to the SEC. The company received the COIN ticker.
Coinbase Global, Inc. was founded in 2012 in San Francisco. The company provides US citizens with the opportunity to buy, sell, and store cryptocurrencies in compliance with federal regulations with subsequent conversion into regular fiat money. Coinbase cooperates with both retail and professional traders. For professionals, there is a special platform with an enhanced API. Also, there is an option of asset insurance to up to $250,000 USD. Scalpers can agree upon decreased commissions.
Apart from serving as a standard crypto exchanger, Coinbase is also a custodian of digital assets for institutional investors. Moreover, the company offers acquiring services for transactions in crypto – over 2,000 online merchants use these services from Coinbase.
As a result, the company operates in both B2B and B2C segments. For each transaction on the exchange, Coinbase charges a commission. At the year-end of 2020, the number of verified users amounted to 43 million people.
The value of assets over the same period was $90 billion. In this case, there is such a strong correlation with the capitalization of the entire cryptomarket. On the whole, it’s quite logical because the value of digital assets is still measured in fiat money.
The company’s pace of development directly depends on the cryptomarket growth dynamics. At the moment, we are witnessing another surge in interest in the industry. One more driver is an extension of the practical application of cryptocurrencies.
The market and competitors of Coinbase
Coinbase is in the TOP-20 of the largest cryptoexchanges in the world. Most part of the assets stored in the platform is Bitcoin (70%). Unlike many other exchanges, Coinbase stores assets in “cold storages” to reduce the likelihood of being hacked. The administration is constantly monitoring suspicious transactions from wallets in the Darknet which are subject to blocking. By doing this, the company fights against illegal operations, which are often performed in cryptocurrencies.
Like I said before, the market size is defined by the extension of the practical application of cryptocurrencies in the economy. Below you can find a comparison of digital asset capitalization of the largest companies included in the S&P 500 index.
As I write, the value of all cryptocurrencies on the market is $1.38 trillion, with Bitcoin being more than 60% of this sum. As we can see, a surge in the sector started in spring 2017 but was later followed by 3 years of stagnation.
The growth and expansion of cryptocurrencies started in 2011. At the moment, according to Coinbase experts, we’re witnessing the 4th growth cycle of the industry. An average growth rate is often measured in triple-digit numbers.
The key competitors of Coinbase are:
The company is filing for an IPO with quite good numbers. Coinbase generates new profit and demonstrates impressive revenue growth rates. According to the report for the last 12 months ending on December 31st, 2020, the company’s revenue was $1.14 billion.
Over 12 months of 2020, the company's net income was $322.32 million against the net loss of $30.39 million over the same period of 2019. The income growth in 2020 in comparison with 2019 was 136.29%. the current surge in cryptocurrencies helped Coinbase to receive net income and double the revenue. As of now, the company isn’t planning to pay revenue dividends.
Cash and cash equivalents on the company’s balance sheet are $1.06 billion, while its total liabilities are $4.33 billion. Trading Volume in 2020 increased by 141.70% if compared with 2019.
In general, we can see a surge in the company’s financial performance, which makes Coinbase shares pretty attractive for investors.
Strong and weak sides of Coinbase
Taking into account all a broad picture of the company’s business, we can evaluate all pros and contras of investing in its chares. Among the company’s strong sides are:
• The company generates the net income with revenue growth of more than 100% over a year.
• Coinbase offers a wide range of services on the cryptocurrency market.
• The company operates on a promising market, which grows by over 50% every year.
• Coinbase is constantly upgrading its software for traders. The exchange administration provides its clients with several commission fee plans depending on their experience and individual needs.
• The company’s shares might be interesting to both crypto optimists and more conservative investors.
• Simple and easy-to-understand business model.
Coinbase’s weak sides in my opinion are the following:
• Coinbase’s financial performance directly depends on the growth rate or decline of the cryptocurrency capitalization. The volatility of most coin prices is measured in double digits, thus making the company’s cash flows rather unstable.
• The company’s current revenue growth rates are very likely to decrease.
• The company was loss-making as far back as a year ago and is not planning to pay dividends.
IPO details and estimation of Coinbase capitalization
Over 9 rounds of financing, Coinbase Global, Inc. raised $547.31 million. Consultants of the direct listing are Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Citigroup Global Markets Inc., and Allen & Company. Neither the price range nor the volume is known so far. However, the report data is enough for estimating the company. The IPO date is also unknown yet, but it is expected to be until mid-April.
Coinbase’s direct listing may be the biggest at the NASDAQ over the last 10 years. To assess Coinbase’s potential capitalization we use the Price-to-Sales ratio (P/S Ratio). For tech companies, the average value of the ratio is 10. In this case, the company’s capitalization may be up to $11.4 billion ($1.14 billion *10).
Considering the specific character of the cryptomarket, we recommend this company for long-term investments not more than 1% of your investment portfolio. Such conservative money management is the result of the high volatility of cryptocurrency prices.
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