Analysts: Here’s why investors shouldn’t buy Coinbase at a $100 billion valuation

A report published by market research firm New Constructs cautioned investors from piling into Coinbase’s iconic public listing at a ‘ridiculously high’ valuation.

Coinbase and $100 billion

The US crypto exchange (stock ticker: COIN) is scheduled to list on the New York Stock Exchange (NYSE) later today, in a move that marks the first-ever time a major crypto business would offer its shares to the general public.

Secondary markets on crypto exchange FTX have valued the company at over $100 billion (and even $150 billion today), amidst growing institutional demand for cryptocurrencies and a strong earnings report earlier this month—the exchange posted revenues of $1.8 billion and a $750 million profit. 

Coinbase at $250/share means it is valued at less than 10x Q1 annualized revenue.

Wall Street is about to see what crypto degens can do to something they want to own

— Pomp (@APompliano) April 14, 2021

But as per New Constructs analysts, Coinbase holds “little-to-no-chance” of meeting the future profit expectations, mainly because the crypto market is still tiny in comparison to the global financial market and newer entrants would cause those figures to drop drastically.

“Our calculations suggest Coinbase’s valuation should be closer to $18.9 billion – an 81% decrease from the $100 billion expected valuation,” New Construct analysts said.

They further pointed out the $100 billion valuation meant Coinbase’s revenue would be a 1.5x multiple of the combined 2020 revenues Nasdaq Composite and Intercontinental Exchange Inc, the parent company of the New York Stock Exchange.

Coinbase will probably be worth more than the NYSE and Nasdaq (throw in a few other scrubs as well) combined by the end of the day tomorrow.

That’s bananas.

— The Wolf Of All Streets (@scottmelker) April 14, 2021

They added traditional stock exchanges also faced a ‘race to the zero’ fallacy which causes them to decrease fees to entice newer investors and traders to themselves and away from other exchange businesses.

Crypto adoption? Not yet.

The numbers aside, New Constructs suggested cryptocurrencies were yet to proliferate the general populace in a meaningful way for Coinbase to have such a high valuation.

It further slammed Coinbase’s claims of cryptocurrencies having “the potential to be as revolutionary and widely adopted as the internet,” stating (citing a survey) that 66% of U.S. adults were “not interested in” crypto and 18% had “never heard of it

“While such a statement can lead to lofty valuations based on a “growth story,” the reality is the cryptocurrency market remains far from “mainstream,” the firm said.

Analysts gave the upcoming stock a ‘Neutral’ rating, stating that while Coinbase saw profitability in 2020, its expected valuation implied the company will become the largest exchange in the world by revenue.

Coinbase has little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion https://t.co/EPlbE3hGTT $COIN #FundamentalAnalysis #CryptoNews

— New Constructs (@NewConstructs) April 12, 2021

Meanwhile, not everyone seems to hold a contrarian view of the Coinbase listing, especially not those in the crypto market. 

Alexander Vasiliev, co-founder and CCO of the global payment network Mercuryo, said the Coinbase listing was a generally positive thing for the cryptocurrency market as it will be both a stock relying on cryptocurrencies and another step toward wider recognition of cryptocurrencies themselves.

Still, New Construct remains unconvinced. “Nevertheless, a valuation at the rumored levels is far too high, and investors should not buy this stock at anywhere close to the rumored levels,” the report concluded.

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