The Coinbase IPO Isn’t an IPO.
6 Things You Need to Know About Coinbase’s 1st Day of Public Trading.
The crypto IPO craze has begun! Only it’s not a coin or an IPO. Coinbase is the largest crypto trading platform in the U.S. It’s first day on the big boards will be a direct listing, not an IPO. If you’re interested in investing, below are a few things to keep in mind. One of the most important considerations is to use a limit order if you do decide to purchase Coinbase stock.
The Coinbase Direct Listing (i.e. Not an IPO)
Direct listings are liquidity events for insiders, not fundraising events for companies. There is no roadshow. It’s more affordable way to go public. Most importantly, early investors are able to turn paper profits into cash. (Yes, the crypto company’s investors will be receiving their gains in USD, not Bitcoin.)
Everybody is talking about the Coinbase IPO. Meme stocks have a reputation for shooting the moon, and then dropping like a rock. (Learn more in my Meme Stock blog.) There will be pressure from insider selling. At the same time, there is a fervor with all things crypto right now. Which side will win in the coming days? In the coming months?
The long-term potential of a crypto trading platform is directly tied with investor interest in cryptocurrency. That love affair has waxed and waned over the years, and then exploded over the past few months. It’s sobering to remember that Bitcoin hit $20,000 in December of 2017, and then lost 80% of its value – dropping $3,400 within one year.
Coinbase Revenue is Up 9-Fold in 1Q 2021!
Coinbase enjoyed a 9-fold increase in revenue year over year in the 1st quarter of 2021. Nothing comes close to that growth in any other industry -- not even in Nio, the Chinese electric vehicle manufacturer that saw revenue more than double. The 1Q 2021 revenue of $1.8 billion is more than Coinbase enjoyed all year in 2020. Revenue in 2020 was just $1.14 billion. Coinbase is profitable – another plus – reportedly bringing in $730-$800 million in net income in the 1st quarter of 2021, more than double the $322.3 million net income of 2020.
The company is on fire. Revenue and profits are up, largely because Bitcoin has shot the moon with a price of $63,700 yesterday. Bitcoin and Ethereum still account for most of Coinbase’s revenue. A crypto price correction would negatively impact Coinbase’s stellar growth.
Another issue is that, like many stocks on Wall Street, Coinbase’s intergalactic growth is already priced into the stock. Should a company with the potential of $8 billion in revenue be worth over $65 billion? If cryptocurrencies continue soaring higher and higher in price, so will Coinbase’s revenue. In that scenario, Coinbase will not be overvalued at today’s price.
Many Direct Listings Lose Value in the 1st Week
The Coinbase reference price is $250.00. If Coinbase follows the trends of other recent direct listings, like Spotify, the price could weaken in the 1st week. On the other hand, with Bitcoin price accelerating yesterday to yet another all-time high (of almost $64,000), it’s likely that Coinbase’s share prices will explode today.
As long as Bitcoin makes up a substantial piece of Coinbase’s revenue, the company’s earnings will have a strong correlation to Bitcoin’s price fluctuations. Everything is coming up fire-hot for now. But the asset does have a track record of blizzard cold spells, too.
The Popularity of Cryptocurrency
As you can see from the chart above, interest in Bitcoin has everything to do with the price of the coin. Past profit-taking has wiped out crypto investors. 2018 was a terrible year for cryptophiles. Those who held on are sitting pretty now. The question is: for how long?
With all of the fever around this IPO, Coinbase should take a trip to the moon today when it hits the NASDAQ Stock Exchange. It might be difficult to jump on board before the ship takes off, however. Be sure to use limit, not market, orders today when you are purchasing your Coinbase shares.
It’s unclear just how long the oxygen levels will remain high in cryptocurrency, and thus in Coinbase, before everything has to ground for a breath of reality and a bit of fresh air. It’s important to remember that, for now, cryptocurrency is a trader’s platform, a way to win and lose a great deal of cash (USD). The Coinbase insiders win today. Main Street investors should enjoy a great ride, too. The question for the future value of Coinbase is highly correlated with Bitcoin’s price. If you see volatility or weakness in Bitcoin in the months ahead, it will hit Coinbase’s revenue and share price.
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About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020.
Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.