bitcoin ethereum it's all a big right now but to get into it you need a cryptocurrency exchange
which leads us to today where we're talking about coinbase one of the earliest crypto
exchanges and one that just happens to be going public this month if you want to see if investing
in a coinbase ipo or more accurately a coinbase direct listing makes sense for you stay tuned
welcome to healthy wealthy and wise where we talk all things that can improve our financial wellness
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make sure you don't miss any upcoming videos so coinbase we've talked about them as one
of the biggest ipos expected for the year and we started talking about them back in december
and when you look at what the crypto has done over the past year the timing makes complete sense
now originally we expected the direct listing to happen last month there was a slight delay
which ended up being a good thing because now we have more information on the recent performance
of the company which i'll tell you about as we work through our discussion so let's dig into the
filing and go over the background and financials of the company before we talk about the coinbase
direct listing itself and then we'll talk some valuations and considerations of the company
so coinbase was founded in 2012 as an exchange for bitcoin so not a brand new company at all now one
of the things i've heard on previous videos where i've talked about coinbase is a decent amount
of complaints on coinbase as far as customer service and issues with the platform and website
now if you've personally had positive or negative experiences with them
definitely love to hear about them in the comments so according to coinbase
they've grown to now directly integrate with over 15 blockchain protocols support over 90 crypto
assets for trading or custody and offer a suite of subscriptions products and services and they have
43 million verified users 7 000 institutions and 115 000 ecosystem partners in over 100 countries
that participate in the crypto economy around the world along with verified users another
major key performance indicator or metric is mtus or what that stands for monthly transacting users
for 2020 that was 2.8 million and we'll discuss where that number could go in 2021.
now coinbase initially and still does make most of their money by charging trading fees now most of
that total revenue from the transaction freeze on the platform comes with connection of the purchase
the sale and the trading of crypto assets by the customers transaction revenue is based on
transaction fees that are either a flat fee or a percentage of the value of each transaction
for retail brokerage products coinbase also charges the spread to ensure that they are able to
settle purchases and sales with the price quoted to their customers another growing part of their
business is in custody operations which involve charging clients to safely store large amounts of
crypto now right now this is not a significant amount of the revenue but when you hear media
stories about people losing their passwords and basically forfeiting millions of dollars there
seems to be some potential value in exploring some growth in this area now taking a look at
the financials from their filing as of december 31 2020 customers have traded over 456 billion
on the platform since coinbase's inception and has stored over 90 billion dollars worth of assets
across their platform for the year ended december 31 2020 uh coinbase generated total revenue of 1.3
billion dollars which is up from 533.7 million in 2019 and then also for the year 2020 transaction
revenue represented over 96 percent of their total revenue which again supports what we just said now
as far as profitability coinbase reported a net income of 322.3 million dollars in 2020
which is up from a net loss of over 30.4 million dollars in 2019. and then just from some other
information that they shared in the filing they reported that their overall market capitalization
of crypto assets grew from less than 500 million dollars in 2012 to up to 782 billion dollars
by december 31st 2020 which represented a compound annual growth rate of over 150 percent
now because there was a slight delay in the listing of coinbase stock we did get some
more recent information on their financials so for the first three months of 2021 ending march 31st
which is newer than the data that was reported in the rest one filing so coinbase just released this
information and again these are all estimates but as of right now coinbase is estimating that
they have 56 million users as of march 31st they had monthly transacting users or again mtus of
6.1 million which is more than double the average of all of 2020. they also reported assets on the
platform of 223 billion dollars representing 11.3 percent of the crypto asset market share
and that includes 122 billion dollars of assets on the platform from institutions
they had trading volume of 335 billion dollars in total revenue of approximately 1.8 billion dollars
with net income coming in approximately 730 million dollars to 800 million dollars they
also reported adjusted ebitda of approximately 1.1 billion dollars now they also offered an outlook
for all of 2021 which we'll get to in a minute but first let's take a quick look at the competition
while coinbase is among the leading online cryptocurrency platforms worldwide there are
some other names as you might have heard of some of those include binance kraken etoro and gemini
and then as coinbase states in their filing they also believe other fintech and brokerage
companies such as square robinhood and paypal are competitors as well now when a company first
starts to trade on the public markets everybody will call it an ipo in this case a lot of people
are talking about a coinbase ipo but it's technically not an ipo it's a direct listing
now if you're unsure what a direct listing is i did make a full video on what they are all
the details of them how they're different than an ipo which i put out right before roblox had their
direct listing so if you haven't seen that i'll link it for you in the description now because
it is a direct listing and not an ipo there is no ipo price and as of this recording we don't
have a reference price out just yet but i'll try to estimate what that could be for you in a minute
now what we do know though is that the coinbase stock is set to start trading on
the public markets on wednesday april 14th and it'll trade under the ticker c-o-i-n
now let's go over some of the considerations of investing in the company first of all i know many
of you will feel that crypto is risky and there's no question there's a lot of volatility in it but
the question might be is how's the volatility of crypto in general impact the crypto exchange like
coinbase where they make money by the transaction fee versus the underlying value of what bitcoin
ethereum or any other cryptocurrency is now a major factor to consider is that the total revenue
is substantially dependent on the prices of crypto assets and volume of transactions produced on the
platform now the reality is is that transaction revenue is the driver of their business
so when you look at how their transaction fee is based is that it's either the greater of either
a flat fee or percentage of the value of each transaction and the flat fee is really dependent
on how much of the value is of the currency you're buying so if that price goes down you may choose
and you're buying the same amount of volume of the crypto asset the price is going to drive
down the transaction fee so while a flat fee might provide some insulation to revenue declines if the
underlying cryptocurrency value drops the flat fee itself is tied to how much the transaction
costs and lowers the value which will likely lead to people buying less i mean we see that all the
time that even though we have the mantra buy low and sell high when an issue or commodity is
dropping a lot of people don't have the summit for buying more when the price is down now with crypto
being still a relatively new asset um we have we can see that there's historically been a lot of
volatility there and then for instance in 2017 the value of certain crypto assets including bitcoin
experienced a lot of increases in value which did result in their customer base expanding however
that increase was followed by a steep decline in 2018 which coinbase said adversely affected their
revenue and operating results so as you're looking at coinbase it has this history of cycles and
we also know it's a new asset so we don't have decades of history to look at
we basically have a decade and we do know that people will pay in excel when prices drop
and we're still trying to figure out what the widespread adoption will be with crypto in general
so right from coinbase themselves which is basically what we're saying is that the price
and the trading volume of any crypto asset is subject to significant uncertainty and volatility
and those can depend on a number of factors including changes in liquidity market making
volume and trading activities trading activities on other crypto platforms worldwide so again
there could be that race for lower fees which could be good for the customer not so good for
coinbase investment and trading activities of highly active retail and institutional
users speculators miners and investors and the speed rate of which crypto is able to gain
adoption as a medium of exchange utilities store of value consumptive asset security instrument or
other security assets worldwide now another risk could be regulations and again we're hearing more
about the potential but as of right now it's uncertain to what form it could take so you
just have to sort of know it's out there but as of right now we don't know what that's going to
look like and again that can vary from country to country okay before we talk about coinbase's
outlook in a discussion of the valuation and potential reference price of the coinbase stock
i just wanted to check in for a quick second to see if you're enjoying the video
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way for me to figure that out so thank you all right let's look at coinbase's outlook for 2021
and this comes right from coinbase themselves now remember we said that 2020 mtu's or monthly
transacting users came in at 2.8 million and for the first quarter of 2021 it came in at 6.1 users
now coinbase came up with three possible scenarios for the annual average mtu so their most
optimistic scenario has them coming in at seven million mtus for all of 2021. this number assumes
an increase in crypto market capitalization and moderate to high crypto asset price volatility
now in this optimistic scenario they expect the mtus will continue to grow for the remainder of
2021. now their middle range estimate is that they come in at 5.5 million mtus now this
scenario seems flat crypto market capitalization and low to moderate crypto asset price volatility
this scenario assumes a modest decline in mtus from quarter one in 2021 now on the low side or
the most pessimistic outlook would be that they come in an average mtu of 4 million according to
coinbase this scenario assumes a significant decrease in crypto market capitalization
similar to the decrease observed in 2018 and low levels of crypto asset price volatility
in this scenario coinbase is assuming that mtus will decrease in a corresponding manner and end
2021 at similar levels to the quarter 4 of 2020. they also talked a little bit about institutional
revenue where coinbase does expect meaningful growth in 2021 they feel that will be driven by
transaction and custody revenue given the increased institutional interest in the
crypto asset class however they do say that their institutional revenue has been very unpredictable
all right so now let's talk about coinbase and their evaluation as we head into the
direct listing and talk about what a potential reference price of coinbase stock could be
now what coinbase did was they did list the most recent transaction prices
on the private market in their s1 filing and those were all from the first quarter of 2021 which was
really through march 15th now the shares traded on the private market at around 200 on the low side
up to as high as 375 dollars on the high side as far as the volume weighted average price per share
for the first quarter of 2021 again through march 15th then that price was 343 dollars and 58 cents
now that would probably be a good estimate of what the reference price could come in at
we've seen just recently with roblox that that's how they figured out their reference price so i
would expect coinbase to do something similar now there's no guarantee it'll be that exact number
and for what it's worth the reference price doesn't mean that's where the stock will open
but just gives you an idea of you know where it could open the stock could still come out
trading a lot hotter it could it could come out trading lower it's just really going to be what
the demand is however when you consider that the higher end of the range was at 375 dollars and now
we have even better numbers that have just come out for the first quarter i would expect that this
stock will probably trade much higher than that 343 dollar number now as to looking at valuation
let's again say that the stock hypothetically trades at 343.58 if the coinbase stock was to
trade at that number the company would be valued close to around 90 billion dollars now to put
things in perspective the company was last valued at eight billion dollars in october of 2018.
and then in the third quarter of 2020 coinbase's stock actually traded for an average of just under
29 on the private markets so i think i mentioned before that coinbase going public now makes sense
because timing really is everything so what do you guys think are you buying coinbase stock
let me know in the comments i hope you enjoyed the video and if you did again please press that like
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