Coinbase S-1 Summary

Coinbase (“COIN”) is currently working with the GS to list directly on the Nasdaq. Rumors speculate that the listing will be between April/June as COIN works through outstanding items with the SEC. For FY2020, COIN reported ~$1.3B in revenue (139% YoY) and EBITDA of ~$527mm (41% margin). Most recently, COIN shares traded on Nasdaq private markets at ~$100B equity value, implying a 77x 2020 revenue and 190x 2020 EBITDA multiple. However, rumors mention that COIN plans on listing at a ~$68B valuation, implying a ~52x 2020 revenue and 129x 2020 EBITDA multiple. Coinbase generates revenue from 3 main sources: retail (91% of 2020 revenue), institutional (5% of 2020 revenue), and subscription/services (4% of 2020 revenue).

As of December 2020, Coinbase had $90B in AUM representing ~12% of the total crypto market at the time ($782B total market value of crypto assets). At the time, CoinMarketCap data showed that Coinbase was the 3rd largest exchange globally. Today, we see the Coinbase is 2nd behind only Binance when looking at transaction volume, and the largest exchange in the US. COIN’s performance and growth is highly correlated to the crypto market. In 2020, Bitcoin’s price increased from $7K to $29K and consequently, COIN saw its trading volume increase from $80B in 2019 to $193B in 2020. The Company has also seen significant growth from institutions – increasing from 1K to 7K clients (2017-2020).

In my opinion 2020 was a unique year for COIN since Bitcoin surged from a March low of ~$3K to ~$29K by EOY. Additionally, crypto saw a boom in Defi that started in the spring and really picked up over the summer. Total value locked on defi protocols surged from ~$800mm in April 2020 to $15.7B by December 2020. We also saw institutional adoption gain traction, kicked off by Square announcing their purchase of Bitcoin followed by PayPal announcing that they would allow sellers to receive crypto payments. CME and Greyscale also scaled up their Bitcoin related investments / ETFs. Looking at a “bear” year for crypto in 2019, COIN did $533mm in revenue and $24mm in EBITDA (5% margin).

So far for 2021 COIN seems to have strong crypto-related tailwinds with increased institutional adoption:

  • GS/JPM mentioned potential crypto-related custodial solutions (on top of Northern Trust and BNY)
  • MS announced that they will allow their institutional investors to purchase Bitcoin
  • Tesla will now accept Bitcoin as a payment

For illustrative purposes, TAM could be the following: inn the S-1, COIN mentions it is their mission to reach 3.5B mobile users around the globe; with ~6.5% MTU and ARPU of $800 we could see an implied market size of $182B.

Competitive Landscape:

  • Retail: Square, Robinhood, PayPal, and Binance are the firms the COIN specifically mentions in the S1
    • But the following would also be competitors:
      • itBit, Bitfinex, Bitstamp, bitFlyer, Kraken, Gemini, Bittrex, and Poloniex
      • Kraken is reportedly raising a large investment round at a ~$10B valuation
  • Institutional: COIN does not call out specific competitors but likely competes with the following – FalconX, PrimeTrust, Galaxy, Genesis, and NYDIG and select exchanges mentioned above

Product Offering:

  • Retail:
    • Coinbase offers support for USD, Euro, CAD, and SGD as fiat currencies that consumers can use to invest in crypto assets (currently ~45 assets available on the platform)
    • Coinbase Credit Card via Visa
    • Custodial services to store, send and receive funds, and savings accounts that generate yields from stablecoins like USDC and Dai, staking (earning fees by supporting certain crypto networks), and lending/borrowing of crypto assets (currently being rolled out)
  • Institutions:
    • In process of building a “one-stop-shop” for institutional
      • Advanced investing/trading, custodial solutions, staking, and lending/borrowing
  • Ecosystem partners:
    • Provide developers, merchants, and asset issuers a platform with technology and services that enables them to build applications that leverage crypto protocols, actively participate in crypto networks, and securely accept cryptocurrencies as payment

Finance Metrics FYE2020:

  • $1.1B in Cash
  • Revenue: $1.28B (139% YoY)
    • US generated 76% of revenue, Europe generated 24% (Company has a presence in ~100+ countries)
    • ~96% of revenue comes from transaction fees
      • Implied take rate was ~0.57% (-2% YoY)
      • COIN also charges a spread to ensure they can settle at prices shown to customers
  • Gross Profit: $1B (80% margin)
  • Adj. EBITDA: $527mm (41% margin)
  • AUM: grew from 17B in 2019 to $90B in 2020
  • Trading Volume: increased from ~$80B in 2019 to ~$193B in 2020
    • Bitcoin/Ethereum drove 56% of total trading volume on the platform in 2020 (Bitcoin was 44%)
    • Retail made up ~36%-40% of total volume
    • Institutional made up ~60-64% of total volume
  • Less than 5% was spent on sales and marketing
    • MGMT mentions that ~90% of customers have joined organically since inception

Key Operating Metrics:

  • Facilitated $456B of lifetime trading volume, and generated $3.4B in revenue (started in 2012)
  • 43mm verified retail users (34% YoY)
    • 2.8mm monthly transacting users (180% YoY; 6.5% of total users)
  • 7K institutional partners
  • 115K ecosystem partners
  • Implied metrics:
    • Average account had $2K in assets
    • Trading volume per MTU was ~$32K
    • ARPU ~$800 last quarter