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Coinbase: Highly Overvalued At $100 Billion Valuation

Apr. 01, 2021 1:05 AM ETCoinbase Global, Inc. (COIN)36 Comments
Douglas Kim profile picture
Douglas Kim


  • Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase.
  • Our base case valuation of Coinbase is $39.9 billion, which is nearly 60% lower than the purported private market value of $100 billion that Coinbase received recently.
  • Overall, at an implied market cap value of $100 billion for Coinbase, we think that there is much larger potential downside risk than upside appreciation.
  • Coinbase is highly exposed to other competitors coming out with more cut-throat lower fees for trading cryptos in the future.

Comparable Companies Valuation Analysis

Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase (NASDAQ:COIN). Our base case valuation of Coinbase is $39.9 billion, which is nearly 5x the value the company received in

This article was written by

Douglas Kim profile picture
I have more than 25 years of experience in analyzing hundreds of companies, especially in Asia. Deep expertise in the following sectors: - Technology (E-commerce, SaaS, Internet) - Consumer - Special Situations/Deep Value Plays - Holdcos/Stubs - Asian Unicorns/Private CompaniesI have worked as an equity research/hedge fund analyst at several companies including BNP Paribas, Credit Suisse, and ING Barings, Currently, I am an independent insight provider at Smartkarma.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (36)

WAM2BAM profile picture
The author is correct the valuation in 2018 was 8 billion. Pre DPO/IPO the estimated value of Coinbase, (COIN) was reported at 18 billion 2020-2021. I agree that a premium is due, and is being paid for COIN, as COIN is profitable at open bell on offering, a rare event. I also agree the valuation by the author of $39 Billion would compensate for that premium due, and account for untold dilution to the shares, of up to 27%, by Jan 1 2022. Did you know about that? Company didn't tell you. So while the valuation was set for open trading @ 250 per share 261+ mil shares available, for a 67 Billion valuation, and if you agree to buy COIN at $250, 67 Billion valuation, that is over 3.5X the valuation pre DPO, assuming there is no further dilution, which would be foolish. $39 Billion is a premium for a company at risk of serious damage from regulations, an or theft, and total would disappear if there is any lengthy interruption, shutdown of the internet. Again risk need to be calculated. Competition is manageable and favor COIN for no other reason than trust and security on a coin that just can vanish. If you don't want to bet on the coins, bet on the house... I will starting adding at $175
Edward Vranic, CFA profile picture
Two issues I see with this analysis:

1. The author repeatedly says something to the effect of "if cryptocurrency prices go down, this is a massive risk". Well yeah. This is no different than gold for a gold company. What if crypto prices keep going up? If the bearish thesis is heavily premised on an underlying asset price going down, then there has to be some analysis on why that asset should go down too. More than one small paragraph at least.

2. The author brings up P/S and that COIN has a greater market cap than NDAQ and ICE combined. Well, the Q1 financial estimate for COIN has bottom line net income in the $730-800 million range. That's about as much as we can expect NDAQ and ICE to earn combined. So the market cap of COIN seems fair at $100 million when comparing to the other two. This is far from a Tesla situation which has a market cap bigger than all the incumbent auto makers combined.

I threw a few pesos at this thing today for fun. I consider this more to be a gamble than an investment. But a fair gamble where I don't think the house has much of an advantage over me at $100 billion market cap.
Coinbase is not a good future investment in crypto world because it is centralized exchange in de-centralized world. More and more de-centralized crypto exchanges like Uniswap is taking over their market shares each year because of you don't have to pay expensive fees and no central authority to restrict your trades. In fact, this year their trade volume surpassed the centrized exchanges. It is already becoming obsolete idea in de-centralized world. www.youtube.com/...
Good article! Not sure if the Binance it's referring to is Binance (not available in the US) or Binance.US. In my limited experience, Coinbase was significantly easier to use than Binance.US or Kraken. I tried depositing crypto onto Binance.US and it disappeared and I had a few instances where they blocked deposits and withdrawals for unclear reasons (the issue just corrected itself within a few days). Setting up a Kraken account was definitely more involved than Coinbase. Just from an entry point, I felt Coinbase was much more seamless. Just thought I'd share my experience, thanks for writing this article!
12 Apr. 2021
Thank you so much for doing al the footwork, totally agree that the valuation is optimistic and that its a cyclical business as such they want to enter at the height of the cycle however that doesnt ite with buying low and selling high,.....i am out of this one till the waves have settled!
There is one area where Coinbase excels: trust

They have the potential to bring Crypto ownership into the mainstream of mom/pop investors who will feel more comfortable with a US-listed/domiciled, company that is playing nice with regulators. They are run extremely well from everything I've seen.

In addition, they appear to have solved the custody concerns of institutional players--who are just getting started in the space.

This trust is hard fought, and well-earned. If the gatekeeper for an institution decides to go elsewhere, they better have a damn good reason...or their job is on the line--and fees will not be a sufficient reason.

I think this is underappreciated with respect to your concerns about competitors.

If my parents were deciding between buying crypo through a Coinbase account, or Binance, the difference in fees would not push them to Binance. And there is no way they would hold their keys privately...in the same way they don't hold physical stock certificates.

The competition angle might be of concern well into the future, once there is less uncertainty about crypto...but I think that is a long way off.

I'd be shocked if this goes out at under $100B.
1.8 billion revenue this last quarter. Massive growth.
Douglas Kim profile picture
Coinbase (COIN US) reported excellent 1Q 2021 earnings today ahead of its IPO listing on April 14th. For the three months ended March 31, 2021, the company expects the following:

Total Revenue of approximately $1.8 billion - This is a tremendous performance as it has generated more revenue in 1Q 2021 than its entire 2020 when it had sales of $1.3 billion.

Net Income of approximately $730 million to $800 million - The company's net income in 1Q 2021 was more than the entire net income of$322 million in 2020.

In the direct listing on 14 April, Coinbase is aiming for about $100 billion in valuation. In 1Q 2021, it had sales of $1.8 billion and high end net profit of $800 million. If we annualize these figures, this would result in annual sales of $7.2 billion and annual net profit of $3.2 billion. These are phenomenal figures. At $100 billion valuation, this would suggest a P/E of 31x. Many investors would be comfortable with these kind of multiples as being reasonable.

Nonetheless, the key problem we see with the company's outlook is how the company will be able to thwart off its challengers in the midst of a much more price competitive environment. Although the company provided guidance about MTUs, they did not really provide specific guidance on pricing going forward. There will likely be many existing and new competitors that will rise up offering much more competitive prices than those offered by Coinbase and unless Coinbase counteracts with competitive pricing in the future, it is likely to lose its customers to its competitors.

All in all, we stick with our original thesis and valuation on Coinbase over a one year view. Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 60% lower than the $100 billion value that Coinbase is trying to aim in this direct listing.

In terms of short-term trading post IPO, given the excellent 1Q 2021 results, we believe that the company's valuation could indeed reach $100 billion. However, we believe this kind of valuation to be short lasting. Over a longer view (one year), we believe there is a higher probability that the company's valuation declines to our base case level (about $40 billion). This will become more evident as numerous other competitors offer extremely low pricing and many customers switch to their services.
@Douglas Kim At $100 billion, this thing is highly undervalued. 30 P/E ratio for a sexy silicon valley blue chip that ACTUALLY makes profits. Ridiculous. They have a first mover advantage in a rapidly growing space. This first mover advantage is crucial, and the fees really don't matter. If it is not "losing customers to competitors" at the moment, why would that happen in the future? In 7 days, this thing will have a market cap of $150 billion. Mark my words
Douglas Kim profile picture
@itgobrr 30 P/E is reasonable but how sustainable is the company's business model? there will be competitors that will be offering near zero fees in the coming years and the business model will suffer greatly...this is a short term play; not a long term holding by any means....
ruber-rant profile picture
Voyager looks like a POS company... cryptotradingtube.com/...
@ruber-rant Maybe the iPhone wasn’t for you, but if you also passed on AAPL that would have been unfortunate.
@ruber-rant As someone that's been using the Voyager platform for a couple months, I agree with the 75-90% of commenters over his POS review. He gives his Voyager referral code at the end, what a joke.
Recommend looking at VYGVF for company comparison.
ruber-rant profile picture
@T&ETrade voyager is garbage company. cryptotradingtube.com/...
@ruber-rant Are all your 2k posts this helpful?
@ruber-rant you're a garbage commenter.
I had once thought I would jump on this but have now decided to deploy my forces elsewhere. It just seems way too high right now.
I want bitcoin to drop to 1$ so i can buy all of it 😎
But i dont think it’s gonna happen 😭
dankmoat profile picture
I feel like Warren Buffett.
They will buy anything that goes up
01 Apr. 2021
@Douglas Kim Very good analysis, completely agree on the ridiculous valuation and thanks for comparing Coinbase will the key competitors and not just on its own like a lot of other analysis I've seen on it.

One thing I wanted to get your thoughts on.
"The company faces a major risk of significant decline in sales and profit growth if the crypto prices decline materially" - given how elevated cryptos are right now, don't you think a lot of people are waiting for prices to drop, before buying? My point is, with any downside on prices, especially a material one, more people will start buying and selling cryptos (sell to lock in gains, or buy for those who missed the boat) and thus commission for Coinbase will grow even more?
Douglas Kim profile picture
@MCLA Good point! Volume would increase for these pent-up demand for customers waiting on the sidelines but the long term trend would be continued decline in overall fees....Normally, when I analyze companies, I have forecasts for the next 2-5 years...On this one, I did not include forecasts due to the difficulty of forecasting crypto prices....besides, if one is so confident on continued rise of Bitcoin, why not just invest Bitcoin rather than Coinbase?
01 Apr. 2021
@Douglas Kim I see.. great to see your thoughts on this. Thanks for sharing.

Some additional info that makes it even a bigger no to invest now is the delay in its direct listing on the Nasdaq by a few weeks to April. The delay follows the CFTC's $6.5M fine against the company on wash trading charges and for filing false reports

CFTC: "According to the order, between January 2015 and September 2018, Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including Bitcoin, on the GDAX electronic trading platform it operated."
The crypto exchange is also said to be under multiple investigations for potential earlier misconduct.
astute pathways profile picture
Gate.io would be my top choice ,if i knew where they are located...internet mentions 3 or 4 cities....They have more listings to trade than any other.
astute pathways profile picture
I went with San Francisco Based Bittrex over Coinbase...The reason was coinbase has about 42 listings to trade, compared to about 90 at Bittrex.......The problem with coinbase is they trade the biggest marketcap coins, which makes it harder to make big profits...Smaller listed Marketcap coins have more upside potential
Why not compare with Voyager Digital, LTD? Voyager is a Canadian crypto exchange which IS publically traded on the stock market ( $VYGVF ). (disclosure, I am invested in them as well as use their platform, have used Coinbase and Binance.us as well, have not tried Kraken). Always been curious if Coinbase stakes their own or user's crypto or use other DeFi yield giving protocols in the background (I wonder the same in regards to all exchanges). Plus does not Coinbase have more services than just their exchange, such as cold storage vaults for high end clients etc? I have used Coinbase and Coinbase Pro (less fees on Pro and more accurate prices reflected), personally find them to have a horrible interface and yeah the fees stink. CB is quick and easy to onramp newcomers is about all I can think of positively about 'em. Edit: Oh and USA based so there may be others like myself from the USA who go to CB first purely for their visibility in USA market.
That said totally agree with the author.
I hear Kraken has plans for an IPO end of this year or next year, CEO publically says he'd like too but no dates set. That's a crypto exchange IPO I may be interested in, though time will tell.
@FlameOfFae Oh yeah Coinbase has also funded other digital asset projects and may have benefited financially from them, comes to mind is around the beginning of this year they were involved in a funding round with Terraform Labs (creators of LUNA, ANC, MIR, and terra stable coins UST, KRT, etc - all on Cosmos SDK utilizing proof of stake). I do not know for certain Coinbase's returns from such ventures, if any, I imagine Coinbase probably has a fair amount of ANC purchased at $0.05 (that's the price Terraform Labs offered to their backers privately before Anchor public ICO - initial coin offering. Does not mean Coinbase took part, no clue, just a hunch that well yeah, yes), as well as whatever other crypto projects they've backed and gotten in on early for cheap. Who knows what assets they put on their books. Come to think the likes of Naval, Pantera, Arrington XRP, Delphi Digital, others also funded Terraform, if memory serves... Some big elbows Coinbase nudging friendly with. And Terraform Labs is just one such example.
Edit: TFL's Anchor protocol allows user to deposit UST, stable coin pegged to the US dollar, and earn around 20% APY. Yeah, 20% APY, on a US dollar pegged stable coin (veerrry low volatility investment/savings, outperforms most if not all bank accounts). CB backed Anchor, so if deposits in Anchor (and compounds their returns back into Anchor... returns are constantly accrued not paid out yearly, monthly, weekly, or even daily).... might be a pretty penny indeed.
@FlameOfFae I may have half-talked myself into their stock excepting disliking them from a user standpoint, which I do think will become a widespread view some day. Also given their activity in digital currency decentralized finance space, not sure what regulations/laws they may trip over to tank their stock any day... unclear regulation in a lot of that regard. Also I for one don't know how involved CB is beyond providing funding. Maybe they are in the clear.
RealAlphaMan profile picture
You wouldn't think Coinbase is overvalued if you saw the exorbitant fees that they charged me for some recent coin sales plus the markdown on the sale spot price for each coin. Ouch!

They do keep your coin safe in cold storage which is worth something.
@RealAlphaMan I don't care for Coinbase but if you still use them and haven't tried Coinbase Pro, may want to give it a shot, the spot prices are more accurate and less fees. Oddly it's a completely different interface, different price results, different fees and a separate wallet. Basically seems CB and CB Pro are two different exchanges run by same company.
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