Coinbase Files to Go Public

Coinbase Files to Go Public

Published: March 2nd, 2021

 On Thursday, February 25, Coinbase, an American cryptocurrency exchange, released its S-1 filling just before the company's direct listing. The company's public debut has been a topic of avid conversation, primarily because of Bitcoin investors' recent heightened activity. Coinbase's spiking valuation on private exchanges and its controversial political position has not helped much.

Coinbase announced the release of its S-1 filing, the official SEC form used by companies seeking to go public. The action was completed on Thursday, February 25, ahead of the company's direct listing. The crypto exchange's public debut has been an anticipated event because of the recent increase in investor activity on the Bitcoin counters. Coinbase's increased valuation among private exchanges coupled with its controversial political position has placed it in the limelight.

The company's financials paint a picture of an entity that experienced rapid growth between 2019 and 2020. The company passed the threshold of unadjusted profitability, which is a common phenomenon among fast-growing tech companies. Such companies often lean more towards adjusted profits, among other flattering metrics.

According to the S-1 filing, the company's net revenue in 2020 shot to $1.14 billion from $483 in 2019. Coinbase also reported a profit of $344 million in 2020 after declaring a loss the previous year.

The company has additional revenue amounting to $136 million, which included direct sales of its crypto assets and interest on the net income. This additional revenue pushed the total figures for the year up to $1.2 billion.

The latest declarations show that Coinbase had some 43 million verified users by the end of 2020. Out of these, almost 3 million make monthly transactions, the filling papers added. Coinbase said that Bitcoin and Ethereum transactions make up almost 60% of the users' trading volume.

Direct Listing Over Traditional IPO

Coinbase will use the direct listing method to float its shares instead of the traditional initial public offering (IPO). A direct listing, often an alternative to an IPO, involves converting employees and investors' stake in the company into stocks, which are then listed on an exchange. It differs wildly from an IPO, which involves offering the corporation's shares to the public through new stock issuance.

Most tech startups seeking to go public have expressed disdain towards the IPO process recently. The disenchantment has led to increased incidences of special purpose acquisition tools and direct listings as the preferred avenues for going public. Spotify, the giant audio streaming and media services provider, went public via a direct listing.

Coinbase's move comes just when the markets are experiencing a boom in cryptocurrency trading activity. In particular, Bitcoin has gained acceptance among mainstream companies and investors. Large companies such as Tesla, Square, and MicroStrategy have recently bought substantial amounts of Bitcoin.

According to Coin Metrics data, on Thursday, February 25, the virtual currency was trading at just under $52,000 a coin. Before December 2020, the crypto asset had never gone above $20,000.

In the filling document, Coinbase listed potential crypto price decline as one of the risk factors. According to the company, its net revenue substantially depends on the price of crypto assets and transaction volumes undertaken on the platform. If such volumes or prices drop, the company's business, operating results, and the overall financial condition is adversely affected, Coinbase added.

Short History Riddled with Stiff Competition

The crypto exchange, which was founded in 2012, helps users trade or store cryptocurrencies such as Bitcoin, and Ethereum among other altcoins. Some of the company's competitors are Coinmama, Gemini, and CEX.IO. It plans to list its stocks on Nasdaq on the ticker symbol "COIN."

The platform's customers spread across more than 100 countries account for the $455 billion that the exchange reported in transactions and $90 billion in assets. Interest in Bitcoin and other cryptocurrencies has increased during the current health pandemic. Several investors have streamed into the digital currency sphere, especially with the weakening U.S. dollar. Besides, some investors think of virtual currency as a hedge against inflation.

The coin's total market capitalization surged past $1 trillion in the week that ended on Saturday, February 20. With the excellent year that the cryptocurrency space is witnessing, it is easy to see why Coinbase is moving swiftly on its journey to go public.

Q4 Decided it for Coinbase

The company generated an impressive operating income of almost $250 million in the outsized fourth quarter of 2020. The income included a net profit of almost $180 million, representing high-quality profitability trends from previous periods. The numbers provide the exchange with appealing end-of-year profit margins, a good recipe for excellent listing.

Coinbase makes a huge chunk of its revenues from transaction fees. Additional cash comes from its subscription and services avenue that, however modest, contributed to some $21 million of the Q4 revenues.

The exchange's trajectory has shifted. In 2019, it swung from a negative operating cash-flow to a positive working capital the following year. However, the $3 billion it held in operating cash in 2020 included about $2.7 billion of the platform's change from the custodial cash that is due to its customers.

According to Alex Wilhelm, a TechCrunch staffer, the custodial cash diminishes Coinbase's overall figure to a more reasonable scale for a company its age. However, he added that the above figures provide the first insight into a fast-growing company.

Wilhelm said the exchange looks a lot like a unicorn that is probably a little overripe for its direct listing. According to him, investors' major headache is how to value the exchange's revenue growth since it represents the broader cryptocurrency market trends, a historically significant fluid quantity.

Final Thoughts

On Thursday, February 25, Coinbase announced the release of its S-1 filing. The act comes ahead of a direct listing that the company has been planning for about a year now. The crypto exchange's listing is the subject of a raging debate, especially coming at a time when Bitcoin has gained increased recognition from mainstream companies. The world's first cryptocurrency recently breached the $50,000 barrier, and even though it has retreated, market analysts think a sustained rally is still likely.

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