Coinbase Valuation Surges to $100 Billion

Just a short time after analyzing Coinbase’s $77 billion valuation and Stripe’s $115 billion valuation in private markets, updated figures from those same exchanges reveal a new assessment for the cryptocurrency platform. According to reporting by Axios, Coinbase is now valued at $100 billion.

Our previous discussion regarding the potential validity of Coinbase’s $77 billion secondary market valuation appears prescient. It would have been unwise to dismiss that figure, considering its subsequent increase of approximately one-third within a matter of days.

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Fortunately, Axios has also obtained data concerning Coinbase’s financial results from 2019 and 2020. This allows for a detailed examination of the company’s performance through the end of Q3 2020.

We will analyze this data and then project forward into Q1 2021 to assess the reasonableness of a $100 billion valuation for Coinbase. Is it illogical, somewhat justifiable, or entirely sensible?

Disclaimer

Please note that this analysis is speculative and should not be considered investment advice. We are simply exploring the data and offering our perspective.

The upcoming direct listing of Coinbase is poised to be a significant financial event, attracting considerable attention throughout the year.

We will revisit Stripe later in this discussion. With valuations now closely aligned in the private market, a comparative analysis is warranted.

Let's proceed with a deeper dive into the numbers and explore the implications of Coinbase’s current valuation.

Coinbase Valuation at $100 Billion

Recent performance details regarding Coinbase were obtained by Dan Primack of Axios, a source I’ve consistently found reliable. Here’s a summary of the cryptocurrency exchange’s financial activity:

• Coinbase in 2019: Generated $530 million in revenue, with a net loss of $30 million.
• Coinbase from January to September 2020: Recorded $691 million in revenue and a net income of $141 million.

Extrapolating from the available 2020 data allows for a projection of full-year figures. This yields an estimated revenue of $921.33 million and a net income of $188 million. Compared to 2019, Coinbase experienced approximately 74% revenue growth and a significant shift towards profitability.

This represents a remarkably successful year for the company. However, a closer examination suggests Coinbase’s performance may even exceed initial estimates. Analysis of trading volume data from Bitcoinity.org reveals that the fourth quarter of 2020 was the most active period for Bitcoin trading on the platform.

Considering Coinbase’s revenue model, which relies on fees from cryptocurrency trading and conversions, the strong Q4 performance indicates that the extrapolated full-year revenue estimate of $921.33 million may be conservative. It is plausible that Coinbase achieved $1 billion in revenue for 2020.

Even at $1 billion in revenue, the company’s valuation still represents a multiple of 100 times revenue, a figure that should be noted as potentially unsustainable. It’s important to recognize that a portion of this revenue may be non-recurring.

Coinbase’s profitability does contribute to a more justifiable revenue multiple. Utilizing a run-rate revenue figure based on the strong Q4 2020 results, the valuation appears to be less than 100 times revenues. Nevertheless, the valuation remains substantial.

A key question is how Coinbase is performing currently. Is the company continuing to experience increased Bitcoin trading volume in the first quarter of 2021, potentially indicating sustained growth and further reducing its run-rate revenue multiple at the $100 billion valuation?

The data presents a mixed picture. Bitcoinity data shows exceptionally high Bitcoin trading volume at Coinbase during the first two weeks of 2021, but volume has since decreased. While still at historically high levels, this downward trend is a point of consideration.

Typically, such a trend might prompt investor caution regarding future growth expectations. However, given the unusual market conditions of 2021 – often described as a continuation of 2020 – it’s likely investors will prioritize the strong Q4 performance and potentially overvalue the company’s prospects.

Primack points out that the recent trading activity served to help Coinbase establish a reference price for its upcoming direct listing. It’s uncertain whether the company anticipated these figures, but there appears to be considerable enthusiasm surrounding Coinbase, potentially exceeding its fundamental value.

For comparison, let’s consider Stripe. When Stripe’s potential $100 billion valuation surfaced last November, The Exchange observed the following:

PayPal’s “Total Payment Volume” or TPV increased from $247 billion in Q3 to $277 billion in Q4. While not a direct comparison to Stripe’s volume, this demonstrates the rapid growth occurring within the online payments sector.

This raises a pertinent question: if Coinbase is valued at $100 billion, why is Stripe, assuming similar growth rates, valued at only $115 billion? The correct valuation is unclear, but it seems improbable that both valuations are entirely accurate.

Further updates will be provided as they become available, as the coming months promise to be particularly interesting in observing these developments.