Coinbase IPO Valuation

Dear Reader,

Coinbase, the American cryptocurrency exchange platform, is about to go public via direct listing today.

According to various news sources, Coinbase could go public at close to 100 billion USD valuation.

What is the real intrinsic worth of Coinbase?

I estimate Coinbase could actually grow into its 100 billion USD valuation in 5-7 years. Currently, Coinbase is worth, according to my estimates, around 70 billion USD.

According to its IPO SEC Filing Coinbase made 1.277 bln. USD in revenue and 127.471 mln. USD in profit in the calendar year 2022 compared to revenue of 482.9 mln. USD and incurred a  loss of 30.387 mln. USD in the calendar 2019.

			Year Ended December 31,
			2020						2019
Consolidated Statement of Operations Data			(in thousands, except per share data)
Revenue:
Net revenue			$	1,141,167					$	482,949
Other revenue			136,314						50,786
Total revenue			1,277,481						533,735
Operating expenses:
Transaction expense			135,514						82,055
Technology and development			271,732						185,044
Sales and marketing			56,782						24,150
General and administrative			279,880						231,929
Restructuring			—						10,140
Other operating expense			124,622						46,200
Total operating expenses			868,530						579,518
Operating income (loss)			408,951						(45,783)
Other income, net			(248)						(367)
Income (loss) before provision for (benefit from) income taxes			409,199						(45,416)
Provision for (benefit from) income taxes			86,882						(15,029)
Net income (loss)			$	322,317					$	(30,387)
Net income (loss) attributable to common stockholders:
Basic			$	108,256					$	(30,387)
Diluted			$	127,471					$	(30,387)
Net income (loss) per share attributable to common stockholders:
Basic			$	1.58					$	(0.50)
Diluted			$	1.40					$	(0.50)
Weighted-average shares of common stock used to compute net income (loss) per share attributable to common stockholders:
Basic			68,671						61,317
Diluted			91,209						61,317
Pro forma net income per share attributable to common stockholders (unaudited):
Basic			$	1.76
Diluted			$	1.57
Pro forma weighted-average shares of common stock used to compute pro forma net income per share attributable to common stockholders (unaudited):
Basic			182,945
Diluted			205,575

13

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			As of December 31, 2020
			Actual						Pro Forma(1)
Consolidated Balance Sheet Data			(in thousands)
Cash and cash equivalents			$	1,061,850					$	1,061,850
Customer custodial funds			3,763,392						3,763,392
Total assets			5,855,414						5,855,414
Custodial funds due to customers			3,849,468						3,849,468
Total liabilities			4,329,363						4,329,363
Convertible preferred stock			562,467						—
Total stockholders’ equity			963,584						1,526,051

Coinbase's growth insures the company will be a large capitalization company in the near future. Yes, new entrants to the market can broker cryptocurrencies at zero commission, but Coinbase has first mover advantage and will monetize its cryptocurrency brokerage platform in other ways.

What is more, cryptocurrency is a disruptive force. Its underlying hashing blockchain algorithm can profoundly change many industries like finance, insurance, real estate. Bitcoin's distributed ledger can provide a safe storage platform and may even disrupt cloud computing.

This means that Coinbase could use its experience and knowledge in the cryptocurrency market to enter new industries and thus achieve higher future revenues and profits which will translate into a higher valuation.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Why Are Technology Stocks Overvalued?

Dear Reader,

Based on common valuation metrics like Price/Earnings, Price/Book and Price/Sales ratios information technology stocks globally and especially in the US are overvalued. If not in a bubble territory.

Why? Information Technology is profoundly changing our lives by saving people and companies time, money and effort. Walls Street investment banks constantly publish upbeat equity research reports on various technology companies which manage to convince portfolio managers of large asset management companies and hedge funds that information technology companies will continue to surpass revenue and profit expectations and their stocks prices will continue rising.

This upbeat story is caught up also by individual investors who together with asset managers and hedge funds perpetuate the growth cycle of technology companies' stocks.

Sooner or later, the investment community will all of a sudden realize that technology stocks are overvalued and they will rush for the exits into the next opportunity which currently seems to be value stocks.

Many market participants think Wall Street investment banks' research reports are biased upwards so as to help drum up brokerage and investment banking business. Hence the few sell recommendations produced by Wall Street equity research analysts. Alternative explanation could also be the positive inclination of human nature.

In short, information technology stocks are overvalued anywhere between 25 % for extremely large capitalization stocks like Apple and Amazon, 30 % to 40 % for large capitalization stocks like NVDA and Netflix and 50 % or more for mid capitalization stocks Dropbox and 60 % for small capitalization stocks. 

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

How to Invest in Cryptocurrency?

Dear Reader,

How to invest in cryptocurrency? There are basically two ways. One direct through the investments in cryptocurrency via a brokerage company like Robinhood or Coinbase or indirect by buying listed company stocks that have a direct or indirect crypto business like Robinhood, Coinbase or AMD.

Investing directly in cryptocurrencies is actually two tiered approach. You can invest in the main, most popular and liquid cryptocurrencies like Bitcoin, Ethereum, Litecoin or Ripple or one can invest in more obscure, less popular and less liquid cryptocurrency tokens usually based on companies' projects. Investing in liquid cryptocurrencies like Bitcoin is profitable, but with significantly less growth potential than ploughing money in more obscure cryptocurrencies. Less liquid cryptocurrencies, however, carry more risk of losing 30 %, 50 % or even 100 % of ones' initial money investment.

The second most popular and now indirect way is to invest in soon to be public companies like Robinhood or Coinbase, the revenue stream of which is largely based on business derived from the cryptocurrency market. Actually, Robinhood and Coinbase are not public yet, but in several months they will be. An even more indirect way to play crypto is to invest in personal computers and chip manufacturers or software makers like AMD, Intel, Microsoft, Nvidia etc. They have less direct exposure to cryptocurrencies, though. So the potential profit from such investments is less.

A third way to play cryptocurrencies is via investing in nonpublic companies. This type of investing carries high risks as well.

Cryptocurrencies, actually, have two main usages. Some cryptocurrencies like Bitcoin and Ethereum provide payments infrastructure and serve as pillars for the whole cryptocurrencies market. Others like Telegram and other companies' cryptocurrencies are based on a company's projects and are more akin to commons stocks in the sense they depend indirectly on a company's future revenue stream. That said, all kinds of cryptocurrencies are not part of a company's capital structure like bonds or common stocks. Or with other words they are not entitled to proceeds from the remaining assets if a company falls into insolvency. That is the main reason why cryptocurrencies investing is much riskier that investing in bonds or common stocks even. Another risk factor for cryptocurrencies is the still vague regulatory framework. There is still the binary risk that cryptocurrencies could be outright banned from governments. However, I believe the risk of cryptocurrencies being outlawed diminishes with every day cryptocurrencies exist and the more they enter our lives.

Large global banks like Goldman Sachs, JP Morgan are contemplating and taking strides of adopting the cryptocurrency business into their main business lines. Large institutions like asset managers and hedge funds have also started investing in cryptocurrencies which decreased the price volatility of Bitcoin, at least.

Yes, Warren Buffett and other value investors have expressed skepticism towards cryptocurrencies. Value investing, however, can bring not more than 10 % a year investment growth in even the best of its years measured by popular value investing indices. Yes, the risk of losing large part of your money is low with value investing, but so is the profit potential. Cryptocurrencies investing, on the other hand can make one multiples on the initial investment in a very short period of time.

Now the market capitalization of the whole cryptocurrencies market is around 1 trillion USD. I forecast the cryptocurrencies market capitalization could reach something like 250 trillion USD in the long run, barring a shock event. World's GDP is around 80 trillion USD. Cryptocurrencies, however, are a sort of money turnover or at least facilitate the exchange of money, so it is natural to expect the size of the cryptocurrency market will exceed world's GDP.

Another utility factor of cryptocurrencies is the blockchain technology that is based on the hashing tree algorithm. This decentralized ledger could disrupt many industries and improve our everyday quality of life by creating efficiencies for businesses like banking, real estate or cloud computing services.

In short, if cryptocurrencies are not banned from governments, cryptocurrencies investing holds huge potential of future value creation.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Bitcoin Risk. Bitcoin's Volatility

Dear Reader,

Bitcoin's risk measured by its volatility or its the standard deviation of its BTC/USD daily volatility is 3.44 % as of 29.03.2021 according to Highcharts.com

Standard deviation is a common measure for risk used in finance. As can be seen from the graph on the link above, Bitcoin's price volatility has decreased from above 16 % in 2011 to 3.44 % as of 29th March 2021.

Even with this decrease, investing in Bitcoin and other cryptocurrencies is characterized with a high level of risk. Especially more peripheral cryptocurrencies outside Bitcoin, Ethereum, Lite coin, Ripple are characterized by high price volatility of their quotations in USD.

Another risk, characterized by dummy variable in statistics or value of 0 or 1, is that Bitcoin and other cryptocurrencies can be outlawed by governments and central banks. However, a similar thing can happen to companies as the case of Ant Financial recently clearly shows. The latter case happening in China.

That said, governments and leading central banks all over the world like the Federal Reserve, The European Central Bank, The People's Bank of China, Bank of Japan seem to have grasped the value that cryptocurrencies can bring to the economy by making the means of exchange, store of value and unit of account or the characteristics of money much more efficient. In addition, central banks are now planning of issuing stable coins or cryptocurrencies backed by the main world currencies themselves.

So the decrease of Bitcoin's risk or its volatility is a very good sign. I guess this recent fall in the risk of investing in Bitcoin is driven by the higher participation of financial institutions like hedge funds and asset management companies in the cryptocurrency market and especially Bitcoin.

Yes, individual investors provided the initial liquidity and risk taking in the cryptocurrency market, but the financial institution's participation will bring fundamental stability to the cryptocurrency market.

What is more, leading banks like Goldman Sachs and JPMorgan have installed even trading desks for Bitcoin or are having plans of developing the cryptocurrency market. 

Yes, investing in Bitcoin and other cryptocurrencies is characterized by high risk, but the cryptocurrency market remains one of the few corners of finance where one can achieve several multiples on one's initial investment. 

In short, the cryptocurrency market is characterized by higher risk, but also by higher potential reward than even small cap stocks.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Robinhood Valuation

Dear Reader,

Robinhood,  the US, Menlo Park, California Based financial services, brokerage, company filed confidentially for IPO. 

In September 2020 Robinhood raised a funding round which valued the brokerage company at 12 billion USD.

So how much is Robinhood's intrinsic value? 

I estimate Robinhood's current intrinsic worth is around 14 billion USD. 

Robinhood, according to various sources, made 682 million USD in revenue for the full year 2020, a more than 500 % growth on the 2019 revenue. Apparently, during the pandemic, many young people with more saved money and time available turned to investing in cryptocurrencies and stocks. I say cryptocurrencies, because even according to its co-founder Vladimir Tenev, Robinhood is a "crypto company" which should suggest that Robinhood makes the majority of its revenue from people trading cryptocurrencies.

Robinhood revenue

Year	Revenue
2015	$2.9 million
2016	$9.3 million
2017	$21 million
2018	$69 million
2019	$111 million
2020	$682 million

In 2020 Robinhood had around 13 million users, mainly young people with much lower brokerage account balances than the investors in other retail trading market leaders like Charles Schwab and E-Trade.

Robinhood users

Year	Users
2015	0.5 million
2016	1 million
2017	2 million
2018	6 million
2019	10 million
2020	13 million

Actually, Robinhood got into temporary trouble during the recent volatility surrounding the GameStop Wallstreetbets forum recommendations. Clearing houses raised margin requirements, and Robinhood had to raise money, about 2.4 billion USD, which means Robinhood is very leveraged. Robinhood loans customers money to trade on margin, which means Robinhood effectively participates in its client's risky investments. Yes, I suppose Robinhood has relatively good risk management. However, this does not mean that Robinhood is not exposed to the volatility of the market. On the contrary, due to its young user base, Robinhood is a much riskier investment proposition than other brokerage companies like Goldman Sachs, Morgan Stanley and even retail brokerage companies like Charles Schwab and E-Trade.

All in all, taking account both the opportunities coming from its gamification interface, young demographic user base, cryptocurrency investment edge, but also Robinhood's inherent risks in its leveraged, small volatile stocks and cryptocurrency trading user base, I estimate Robinhood is worth around 14 billion USD currently. 

And this valuation is influenced by the current high valuation state of the stock market, helped by money creation by central banks, which I can only characterize as a bubble.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Are Value Stocks Poised for a Comeback?

Dear Reader,

Value stocks or stocks with low Price/Earnings, Price/Book and Price/Sales ratios are outperforming by significant margin growth stocks  since the beginning of 2021 for the first time since 2002-2003 after the bursting of the Dot-Com bubble.

Are value stocks set to outperform more? Yes, I think in the next two or three years value stocks, which in today's market are energy, financials, industrials and commodity producers, should outperform growth stocks, which nowadays are technology stocks.

However, I believe the general market will start going up markedly again bringing along technology stocks. Simply because technology companies through the use of algorithms help firms and people save on money, effort and time, which is a characteristic of a best selling product.

I particularly think energy producers like Marathon Oil Corporation and Petroleo Brasileiro are still undervalued. Regional banks, in the USA especially, are also set to outperform driven by the rising rates environment and their high dividend yields. Automobile manufacturers are also a good proposition with their steady positive cash flows which turn into healthy dividends.

Industrials are also set to rise significantly driven by higher infrastructure spending, in the US especially.

Once the hottest technology stocks that have risen most fall by 30 % to 40 % from their recent peaks, I think many of them will rise in price significantly. I think Twitter and up and coming social networks like Pinterest and Snap, Snapchat application's owner, could soon become undervalued.

All that said, I still think we are in a general stock market bubble driven by central banks creating monetary reserves by printing money and indirectly subsidizing current and future large government spending.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich