Coinbase’s expected $100 billion valuation is ‘far too high’ given the increasing competition in the cryptocurrency market, a veteran stock analyst says

coinbase mobile phone app
In this photo illustration, Bitcoin course’s graph is seen on the Coinbase cryptocurrency exchange application on February 12, 2018 in Paris, France. Founded in June of 2012, Coinbase is a digital currency wallet and platform where merchants and consumers can transact with new digital currencies like bitcoin, ethereum, and litecoin. The company is based in San Francisco, California generated in 2017 a record turnover of one billion dollars (about 810 million euros) with exceptional trading volumes, which made it the most downloaded mobile app on iOS last December.

  • Coinbase’s rumored $100 billion valuation is “far too high,” said New Constructs CEO David Trainer.
  • The cryptocurrency exchange is set to go public via direct listing in the near future.
  • Trainer said increasing competition in the crypto exchange market will weigh on Coinbase’s lofty valuation.
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Coinbase could go public via a direct listing as early as March, but New Constructs CEO David Trainer says investors should not buy the stock if the valuation is anywhere close to current expectations.

The cryptocurrency exchange platform has a rumored valuation of roughly $100 billion, which is “far too high” given the increasing competition in the market, Trainer said in a recent note.

Although the company achieved profitability in 2020, the current expected valuation implies that Coinbase will become the largest exchange in the world by revenue, which isn’t guaranteed given the existence of competitors like Gemini, Kraken, and Binance, he added.

In 2020, transaction revenue represented over 96% of Coinbase’s net revenue, according to Coinbase filings. Trainer points out that the exchange’s transaction revenue as a percent of trading volume is 57 times higher than the Intercontinental Exchange, which runs the New York Stock Exchange.

Competitors will likely emulate Coinbase’s high margins, and the exchange’s “competitive position will inevitably deteriorate,” Trainer said.

“…if stock trading fees are any indicator for crypto trading fees, we should expect them to quickly go lower if not to zero,” said the research analyst. “Competitors such as Gemini, Bitstamp, Kraken, Binance, and others will likely offer lower or zero trading fees as a strategy to take market share, which would start the same “race to the bottom” that we saw with stock trading fees in late 2019.”

“The likelihood of Coinbase maintaining such high fees is very low in a mature market,” he added.

With an expected valuation of $100 billion, Coinbase would earn a “neutral” rating from New Constructs.

Last week, D.A. Davidson initiated coverage of Coinbase with a “buy” rating and price target of $195. However, the analysts said it’s too early to tell if Coinbase will become the “Amazon of crypto” or the failing Netscape.

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Coinbase’s direct listing is ‘an Amazon moment for crypto,’ and will bring cryptocurrency further into mainstream finance, D.A. Davidson says

Coinbase Founder and CEO Brian Armstrong
Coinbase Founder and CEO Brian Armstrong

  • Coinbase’s upcoming direct listing will be an “Amazon moment” for cryptocurrencies, according to D.A. Davidson. 
  • The firm initiated coverage of the crypto exchange with a “buy” rating and $195 price target. 
  • D.A. Davidson said the public debut will be a milestone for the convergence of cryptocurrency and traditional finance.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Coinbase’s upcoming direct listing will be a milestone event, marking the covergence of cryptocurrency and traditional finance, according to a team of D.A. Davidson analysts. 

In a recent note D.A. Davidson initiated coverage of the cryptocurrency exchange with a “buy” rating and a price target of $195. Analysts led by Gil Luria said Coinbase’s public debut will be the “Amazon moment for crypto,” as cryptocurrency will move from “a large curiosity to becoming the future path for much of the financial system.” 

Coinbase will be the first major cryptocurrency exchange to go public. According to the analysts, the exchange’s superior user experience has positioned it as the “leader” in facilitating the onramp/off-ramp from government currency (like dollars) in crypto (like bitcoin.)

“With a big target on its back as a crypto wallet, (to date) Coinbase has been able to manage both government regulators as well as highly motivated hackers, while providing consumers with the experience they expect from a large financial institution,” the analysts added.

As both an exchange and broker, Coinbase’s competition includes Grayscale, Kraken, and Gemini, as well as broader consumer digital wallets like Square, PayPal, and Robinhood, said D.A.Davidson.

The firm’s $195 price target is based on 2021 revenue estimates, but the firm has not been able to connect with Coinbase during its quiet period. Revenue in 2020 was $1.28 billion, a jump from $553.7 million in 2019, according to a consolidated operations statement included in Coinbase’s filings.

For the year ended December 31, 2020, transaction revenue represented over 96% of net revenue. Bitcoin has soared 68% in 2021 and it’s unclear how that affects revenue estimates.

D.A. Davidson noted Coinbase is a more speculative investment than other companies it covers. They also noted the unusually high risks associated with the volatility of crypto prices, and said it’s too early to tell if Coinbase will actually become the Amazon of crypto or the Netscape.

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