Why Coinbase $100B IPO Valuation Is 'Ridiculous'

According to market research firm New Constructs, the Coinbase stock offering will be severely overvalued at the time of its IPO.

What Happened: According to a report published by a market research New Constructs, despite Coinbase's revenue climbing ever higher over the past 12 months, "the company has little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion."

The authors of the report explain that the crypto market is still very young, and many more companies will compete with Coinbase in the future, which would cause "Coinbase’s transaction margins to drop precipitously."

Why It Matters:  The firm cited the so-called "race to the zero" that saw stock exchanges decrease their fees, noting that the crypto space is headed in the same direction, which will cause competitors to force Coinbase to cut its trading fees to stay competitive.

According to New Construct's analysis, to be worth $100 billion Coinbase's revenue would need to reach 1.5x the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq Composite (INDEXNASDAQ: .IXIC) and Intercontinental Exchange Inc (NYSE: ICE), the parent company of the New York Stock Exchange. The exchange's value estimated by the firm is much, much lower, "Our calculations suggest Coinbase’s valuation should be closer to $18.9 billion – an 81% decrease from the $100 billion expected valuation."

See also: How to Buy Coinbase IPO (COIN) Stock

What Else: The report also suggests that while Coinbase claims in its filings that “crypto has the potential to be as revolutionary and widely adopted as the internet," data analytics firm CivicScience, 66% of U.S. adults are “not interested in” crypto and 18% have “never heard of it.” Furthermore, the study finds that while the number of people investing in cryptocurrencies is rising quickly, it still remains low at just 9%. 

"While such a statement can lead to lofty valuations based on a “growth story," the reality is the cryptocurrency market remains far from “mainstream,” New Construct's analysis wrote. 

Image: Courtesy of Coinbase