Nasdaq, an exchange that has never hosted a major direct listing, is about to try its hand on the most valuable company to go public using one.
Coinbase, the largest U.S. cryptocurrency exchange, is set to debut through a direct listing, an alternative to a traditional initial public offering that has only been deployed a handful of times. While Slack, Palantir Technologies and most recently Roblox all listed on the NYSE, Coinbase picked the younger bourse known for tech-oriented companies.
Early indications showed the stock opening at $340 per share, which would give Coinbase a market valuation of $63 billion, and a fully diluted valuation of almost $89 billion, according to Bloomberg calculations. That would make it the biggest company to take the direct listing route to market.
Nasdaq set a reference price of $250 a share for Coinbase’s direct listing, a number that’s a requirement for the stock to begin trading, but not a direct indicator of the company’s potential market capitalization. Every major direct listing has so far opened significantly above its reference price, with Roblox shares debuting at $64 each — 42% higher than the number set by the exchange.
Coinbase shares changed hands at a roughly $90 billion valuation in early March, Bloomberg News reported at the time, in what was one of the last chances for investors to trade its private stock before the company went public.
Digital Currency Group founder Barry Silbert, who’s built an empire that spans the crypto world, tweeted Tuesday that his shares would definitely not be changing hands at the reference price.
I will not be selling any of my Coinbase stock to you at $250. Try again
— Barry Silbert (@BarrySilbert) April 13, 2021
Coinbase’s CFO, Alesia Haas, said in an interview that one of the reasons that the company picked Nasdaq is because the bourse offered the ticker symbol "COIN," which was not part of the NYSE’s pitch.
“Ultimately that they had the ticker COIN and that was a really great ticker for us to get,” Haas said.
Nasdaq’s ability to provide a private market for the shares, as well as services it offers such as investor relations work, were among its selling points, according to a person familiar with the matter.
Appropriately for a company that in May said it was committing to a “remote-first” work culture and doesn’t list a headquarters on its filing, Coinbase’s pitch meetings with Nasdaq happened virtually, the person added.
“We evaluated both NYSE and Nasdaq and ultimately felt that the Nasdaq platform was aligned with our value as a tech company,” Haas said.
In a direct listing, a company’s shares begin trading without it issuing new shares to raise capital. That avoids diluting the shares and also, unlike a traditional IPO, often allows the company’s existing investors to put their shares on the market without waiting for lockup period — typically six months — to expire.
Luring Coinbase is a win for Nasdaq, whose years-long fight for a larger share of mega listings gained traction in the past year. Half of the 10 largest U.S. IPOs, excluding blank-check companies, were on Nasdaq, according to data compiled by Bloomberg. That included the third largest, Airbnb’s $3.8 billion IPO in December, which was the biggest listing on Nasdaq since Facebook's $16 billion monolith in 2012.
Putting his trust in the stock exchange is Coinbase CEO Brian Armstrong, who started the company with Fred Ehrsam in 2012. At the time, few people had even heard of Bitcoin, and many crypto exchanges were run by amateurs from their garages and homes. Unlike most rivals, Coinbase’s founders always envisioned strict regulatory compliance as a cornerstone of the operation, which has helped the exchange to grow in the U.S., where many early Bitcoin traders and investors were located.
Ehrsam left the company in 2017, and is now investing in crypto startups. Both Armstrong and Ehrsam own huge swaths of Coinbase, with stakes worth about $15 billion and about $2 billion, respectively.
Coinbase is going public as Bitcoin, which together with Ethereum made up 56% of its 2020 trading volume, jumped to an all-time high. The token breached the $64,000 level for the first time Wednesday, exceeding the previous peak a day earlier. Ether, the second-largest cryptocurrency, climbed to a record, while Bitcoin Cash jumped more than 10% at one point.
On the back of the boom, Coinbase last week said it expects to report a first-quarter profit of $730 million to $800 million, more than double what it earned in all of 2020.
“They are going to build out a full financial services company,” said Barry Schuler, a co-founder of Coinbase investor DFJ Growth who until last year sat on the company’s board. “Like a crypto version of a Goldman Sachs or a Morgan Stanley.”
The company’s rapid growth hasn’t been without controversy, ranging from frequent outages during periods of heavy trading to new restrictions Armstrong placed on employee discussions of politics last fall. In March, Coinbase also settled with the CFTC for $6.5 million, after the agency said the company reported inaccurate data about transactions and that a former employee engaged in improper trades.
Then there are the crypto skeptics, as well as the regulators around the world who are stepping up oversight and casting doubt on Bitcoin’s usefulness as a currency.
European Central Bank executive board member Isabel Schnabel, in an interview this month with Der Spiegel, called Bitcoin “a speculative asset without any recognizable fundamental value.”
Coinbase’s early investors disagree.
“I think Coinbase is this decade’s Microsoft, Netscape, Google or Facebook,” Garry Tan, founder and managing partner at Initialized Capital and an early-stage Coinbase investor, said in an interview with Bloomberg Television Tuesday.
— Additional reporting by Ed Ludlow
