This week, I want to address some of my thoughts on Coinbase, one of America's newest unicorns. It was valued at $8 billion at the end of 2018, up nearly five times from its 2017 valuation. This was on the back of increased cryptocurrency transactions in 2018, which contributed to a $1.3 top line revenue for the company. This was up almost 40% from its 2017 revenue. The bottom line profit in 2018 was $456 million, for a strong 35% net margin. The main concern moving forward for Coinbase is its dependance on the state of the cryptocurrency market as company’s main revenue stream is through fees and markups in completing cryptocurrency transactions. Despite the massive cryptocurrency sell-off in the 2018 bear market, Coinbase still collected fees as many customers looked to cash out their digital assets into USD fiat. The more uncertain question will be Coinbase’s revenue in 2019 if cryptocurrency prices do not rally. Coinbase’s main customer base are retail investors that are often susceptible to market trends. With their follow the herd mentality, it is unlikely that Coinbase will be able to generate the same revenue if retail investors do not see upward price action in cryptocurrency that would spur a new wave of investment. Coinbase continues to diversify its revenue streams, such as providing their margin trading, risk management algorithms, and custodial services for institutional investors.
The company seems to maintain a strong balance sheet with $400 million in outstanding debt and over $620 million in cash or cash equivalents on its book. It is unlikely that the company will face a capital crunch anytime soon, however its growth narrative is the main concern. Coinbase closed its most recent funding round at $300 million on the $8 billion pre-money valuation. Some of its major investors are Andressen Horowitz, Polychain Capital, Greylock Partners, and Wellington Management amongst others. To date, the company has raised $514.8 million. A large portion of the funding has been used for twelve acquisitions since the beginning of 2018. Some of the notable purchases include Earn.com ($121 million), Keystone Capital Corp., and Neutrino. Neutrino attracted particular controversy as its senior leadership attracts negative publicity for previously selling cyber hacking tools to countries with a poor history of human trafficking. It will be interesting to see if Coinbase attempts another funding round and how investors may weigh the current cryptocurrency sentiment when valuing Coinbase.
My biggest concerns with Coinbase are the Neutrino acquisition and the continued emphasis on altcoins (shitcoins) like BAT. They are clearly scrambling to maintain revenue and are hoping to dump more useless coins on customers. Also, they're non-custodial mobile wallet is trying to be a "gateway to the decentralized web" that I don't think will pan out. How many people are actually using dapps?