Coinbase Earnings Will Blow You Away

Coinbase is releasing their Q1 earnings tomorrow, before they IPO on the 14th. Will they blow Q1 expectations out of the water? Why should the broader crypto community care? 

People underestimate the effect of having regular quarterly reports from a high profile, crypto native company. Brokerages will initiate research coverage and Coinbase will absolutely crush earnings expectations through 2021. 

Traditional finance can no longer put their fingers in their ears and yell that “Bitcoin isn’t real” when you have a public company pulling in ~$2B in revenue every quarter.

Robinhood’s announcement they filed to IPO is a great example of the cognitive dissonance and prejudice towards crypto companies. We don’t have full RH financials yet, but they have to declare revenue from selling order flow. In 2020, this was $675M and represents ~50% of total revenue, putting a ballpark $1.3B for 2020 revenue. The rumored valuation is ~$50B, implying a 38x 2020 revenue multiple. But there was no media outrage or questioning of this valuation.

Compare that with the widespread media outrage and disbelief that a crypto company could have the audacity to demand a $100B valuation. Coinbase at 43M users has more than double the users than RH, but that made little difference. 

Admittedly, the $100B valuation implies 77x multiple on CB’s 2020 revenue of $1.3B. But this is why Coinbase was so incentivized to delay their IPO - so they could release Q1 results that set the playing field for the insane growth coming in 2021.  

CB has three main lines of revenue (Transactional, Subscription, and Other). Transactional is 86% of revenue, so exchange volume is the best predictor of revenue. Transactional revenue / volume has been relatively consistent, but this is a blended rate between institutional and retail customers. The institutional rate is significantly lower than retail and could drag down the ratio if institutional volume were to increase.

However, at already 64% institutional volume in Q4 and Coinbase retail app downloads reportedly surging, we can use this is a directional method to gauge revenue.

According to CryptoCompare data, CB had $329.3B volume in Q1. Volume for all of 2020 was $193B. Using the 0.54% rate from Q4 this implies ~$1.8B in revenue just for Q1. Transactional revenue was $1B for the entire 2020 year. 

If we annualize the Q1 $1.8B revenue with no growth, that is ~$7B 2021 revenue. By assuming the 0.54% and annualizing revenue to $7B, if we then take a 14x multiple, we get to a $100B valuation on transactional revenue alone. 

When Coinbase releases their Q1 2021 numbers tomorrow, a lot of jaws are going to drop. They will completely surpass analyst expectations. Then they’re going to do the same thing again in Q2 and Q3 and Q4. Even if you’re not a fan of Coinbase, their quarterly earnings will be huge in flipping the mindset of traditional finance and investors, causing major waves for Bitcoin.

- Ellie Frost


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