It may be a hallmark of public listing of shares that as disruptive tech companies come to market, their stocks soar. The lofty share prices are proof positive that 1) the company is disruptive and 2) the market it promises to disrupt is both real and ripe for disruption.
Coinbase, the cryptocurrency exchange, went public through a direct listing on Wednesday (April 14), and at this writing, at a closing price of just under $329, the stock is traded off of its intraday highs of about $429. Volume was strong, at 79 million shares traded, so the market cap at day’s end stood at $84 billion.
Nothing to sneeze at, though we note that earlier in the day, the market cap was north of $100 billion when the stock was trading higher. Volatility comes to all things crypto-related, of course.
And it is volatility, as we noted in this space, delving into the company’s filings with the Securities and Exchange Commission, that is among the key risk factors facing the company: “All of our sources of revenue are dependent on crypto assets and the broader crypto economy. Due to the highly volatile nature of the crypto economy and the prices of crypto assets, our operating results have, and will continue to, fluctuated significantly from quarter to quarter in accordance with market sentiments and movements in the broader crypto economy.”
Hyper growth in crypto trading has been enough to bring the firm to profitability on a huge scale, where only a few years ago — that would be 2019 — the firm had a net loss of $30 million, and this past year that line item swung to $322 million; the firm has projected that net income this year will be between $730 million to $800 million.
Enthusiastic Reception But Risks Loom
Coinbase cements its status as becoming the first pure play crypto firm to list its shares. The enthusiastic reception seems to embrace the idea that trading will grow, perhaps in linear fashion (though of course, nothing is guaranteed to travel in a straight line). The company still makes an overwhelming majority of its business on transactions/fees tied to exchange activity.
As quoted in an interview with CNBC, Coinbase’s public market debut is “potentially a watershed event for the crypto industry and will be something the Street will be laser focused on to gauge investor appetite,” as stated by Dan Ives, a tech analyst at Wedbush Securities.
Some metrics stand out. Coinbase noted in its first-quarter update (the latest set of numbers we have) that monthly transacting users of 6.1 million came across a population of verified users of 56 million. That would imply that, though the absolute number may be impressive, the fact remains that just under 11 percent of the “population” is actively using the exchange. That may hint to a challenge in making the exchange “sticky” in a way that encourages repeated use — and acquiring new customers to keep activity going if others remain, well, dormant, takes time (and money).
One day’s trading in the bag — and a notable debut it was — and now comes the rest of the story, played out over time.
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Selected by EFXA