Coinbase made history on April 14, 2021 by successfully listing on the NASDAQ exchange for billions of dollars.
All Coinbase employees work remotely and the company lacks a physical headquarters, so this was notable. It also signaled that the Crypto industry has come of age and is now considered mainstream by one of the largest exchanges in the world.
A year later, is the optimism generated by Coinbase’s IPO still warranted? It’s worth checking out.
Coinbase’s IPO via direct listing was a success
When Coinbase went public in April 2021, the value of a Coinbase share briefly shot up to $429.54 on the trading day. According to CNBC, the company was briefly valued at over 100 billion US dollars.
The party didn’t last long, however.
Coinbase shares have since plummeted, as a year later a Coinbase share is currently trading for around $90 while the company is valued at around $25 billion.
Coinbase Shares Dropped: What Happened?
There are at least three reasons Coinbase isn’t performing as well as expected right now.
1. Cryptocurrencies have collapsed
After losses in the crypto industry, the value of all cryptocurrencies has fallen by over 60%. As Reuters notes, the crypto industry has declined from a peak of $2.9 trillion in 2021 to below $1 trillion in 2022. If the regular stock market suffered such a breakout, the economy would be in a severe recession.
It was inevitable that Coinbase shares would fall along with the value of cryptocurrencies.
2. Lower revenue
Coinbase relies on commissions from trades to make money. According to Coinbase’s letter to shareholders, Q1 2022 net income was $1.2 billion while total expenses were $1.7 billion – Coinbase lost $500 million.
A decline in overall trading volume drove the loss to $309 billion, down 44% sequentially (although this was consistent with the decline in trading volume across the crypto industry, which was also down 44%). Coinbase also lost 2.2 million monthly active users.
Paradoxically, Coinbase increased its trading volume market share in seven of the top ten assets traded on Coinbase.
With Coinbase’s commission-based earnings no doubt set to come under pressure from rivals like Binance, FTX, Gemini and Kraken in the coming months and years, investors are worried.
3. SEC investigation
According to Bloomberg, the Securities and Exchanges Commission has launched an investigation into Coinbase for allegedly facilitating illegal trading in digital assets that qualify as securities. The SEC is also investigating a Coinbase employee for insider trading.
This has also unsettled investors. As a result, many Coinbase stocks have sold off, further depressing Coinbase stock.
Coinbase isn’t too concerned
Coinbase doesn’t seem overly concerned about its future. After such a dismal year, one would expect staff to be laid off. Instead, Coinbase has hired a total of 3,200 employees, according to its shareholder letter.
We ended the first quarter with 4,948 full-time employees, up 33% from the last quarter… In the last 12 months, we added over 3,200 net new employees… Our growing team gives us additional resources for product development and execution, as well as Customer support, compliance and more, which we believe serve as long-term competitive advantages for us
Additionally, Coinbase expects to be well served by products like Coinbase Wallet, the Coinbase NFT marketplace, and expanding deployments on the platform with the addition of Cardano.
It also has billions of dollars in cash and assets.
Coinbase will be fine
Cryptocurrencies have come a long way and are now enjoying widespread acceptance in all major economies outside of China, Russia, India and Turkey.
There is no going back to crypto anywhere in the world. So as long as Coinbase gets its big bets right, it will likely thrive over the long term.
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