Coinbase, the largest US cryptocurrency exchange, made history, being the first major crypto company to go public with its stock market debut on the 14th of April. The listing shows growth in a once niche industry and indicates acceptance of cryptocurrencies into mainstream business. It also allows investors to get exposed to the crypto industry without actually owning cryptocurrencies, such as Bitcoin.
In this article, we discuss Coinbase and its monumental stock market listing.
Founded in 2012, Coinbase is a US-based online platform that allows users to buy, sell, transfer and store digital currencies. Including some of the more well-known cryptocurrencies, such as Bitcoin and Ethereum, Coinbase offers around fifty types of crypto assets. Users can even send cryptocurrencies to each other or pay at any merchant that accepts Visa with a Coinbase Card.
The company serves 56 million users globally and breaks its clientele down into three categories: retail users, institutional investors and ecosystem partners. Out of these, the majority are retail users.
Similar to other platforms, the company makes a majority of its revenue from transaction fees on trades. Coinbase announced that in the first quarter of 2021, total revenue was approximately $1.8 billion, and net income was more than double what it was in all of 2020, between $730 and $800 million.
Direct listing versus an IPO
There are several differences between going public through a direct listing and an initial public offering (IPO).
With IPOs, companies that want to go public will hire underwriters that help them through the listing process. This includes assisting in pricing the shares for the initial offer, helping with regulatory requirements, buying the shares from the company and selling them to investors. In return, the company pays the underwriter a fee, typically a percentage per share. In contrast, there are no underwriters involved with a direct listing, and therefore, it is usually cheaper than an IPO.
Another difference is regarding the shares offered. With an IPO, a company issues new shares of the company, typically to raise capital. On the other hand, with a direct listing, a company issues stock that already exists, and employees or investors already holding shares can directly sell them to the public. In this case, a company does not wish to raise capital, and existing shareholders can immediately trade their stocks as a lockup period is not applicable.
Coinbase joins the Nasdaq
As mentioned, Coinbase started trading on the 14th of April on the Nasdaq, fittingly under the ticker COIN. Since it was a direct listing, shares were not officially priced before they start trading. However, with direct listings, reference prices are set to help investors get an idea of a company’s value. On the 13th of April, the Nasdaq set a reference price of $250 per share.
On its first day of trading, Coinbase had an opening price of $381. Prices climbed as high as $429.54 but ended the day at $328.28, 14% less than the opening price. The $328.28 closing price gave the company a value of around $86 billion.
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Sources: Bloomberg, Investopedia, Barron’s, MarketWatch, Motley Fool, Coinbase, New York Times