The Coinbase IPO is set to take place on Wednesday 14 April. The highly anticipated initial public offering will take place through a direct listing on the US Nasdaq index under the ticker symbol ‘COIN’.
Coinbase IPO: Nasdaqâs first major direct listing
As a direct listing, the company will float its shares on the stock exchange without hiring investment banks to underwrite the transaction. Also unlike a traditional IPO, the Coinbase IPO wonât be raising additional funds.
The precise timing of the listing isnât clear. As an example, the big data company Palantir did a direct listing in September, and its shares first started trading several hours after the market opened. Â
Nasdaq gave Coinbase a reference price of $250 a share. This values the company at around $65bn. The nature of a direct listing means itâs difficult to know at what price the shares will trade.
Coinbase is the largest cryptocurrency exchange in the US. Users can buy, sell, send, receive, and exchange cryptocurrencies. CEO Brian Armstrong founded the company in 2012. Users of the platform mainly deal in Bitcoin and Ethereum, but the platform offers many other cryptocurrencies.Â
Strong growth metrics
There are some things I particularly like about the Coinbase IPO. Regardless of polarising views on cryptocurrencies, Coinbase recently reported impressive business metrics. It now has 56m users, an increase of 30% since the end of 2020 and 75% since the end of 2019.
Its revenue soared to $1.8bn for the first three months of 2021. This is significantly above the $1.27bn it achieved for the whole of 2020. The majority of revenues are generated from transaction fees from buying and selling cryptocurrencies on the platform. Its double-digit profit margins are equally as impressive, in my opinion.
Risks ahead
Despite strong recent growth, there are a number of risks ahead. Much depends on the uptake of Bitcoin and other cryptocurrencies. Bitcoin has seen a surge in the past year that has even attracted institutional money and companies like Tesla. But cryptocurrencies are volatile and speculative. Any loss of interest could have a significant negative impact on exchanges including Coinbase.
Competition is another concern. New exchanges are launched frequently and can become large very quickly. For instance, Binance is the worldâs largest platform but it was only founded in 2017.
As a relatively young industry that has potential wider ramifications for financial markets, regulation is another key risk. Some countries like India are looking at banning digital currencies. And earlier this year, US treasury secretary Janet Yellen warned that the government may need to âcurtailâ their use.
Valuation is another big concern for me. Although a reference share price is given, I wonât know its actual price and therefore its valuation until it starts trading.
So, investing in the Coinbase IPO is not for the faint-hearted and comes with risk attached. In particular, the first day of trading could be extremely volatile. For this reason, I wonât be investing any time soon and would much rather wait for signs of stability to reassess. Until then, there are several other US growth stocks Iâd look at instead.