If Coinbase is worth $100 billion, what’s a fair valuation for Stripe?

Mere days after we discussed Coinbase at $77 billion and Stripe at $115 billion in the private markets, those same semi-liquid exchanges have provided a new valuation for the cryptocurrency company. It’s now $100 billion, per Axios’ reporting.

Good thing we argued last week that there could be some merit to Coinbase’s $77 billion secondary market valuation from a particular perspective. We’d look silly today if we’d mocked the $77 billion figure only for it to go up by about a third in just a few days.

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Luckily for us, Axios also got its hands on a few numbers regarding Coinbase’s 2019 and 2020 financial performance, so we can get into all sorts of trouble this morning. We’ll look at the data, which stretches to the end of Q3 2020, and then do some creative extrapolating into Q1 2021 to decide whether Coinbase at $100 billion makes no sense, a little sense or perfect sense.

As always, we’re riffing, not giving investment advice. So read on if you want to noodle on Coinbase with me; its impending direct listing will be one of the year’s most watched financial events.

We’ll drag Stripe back in at the end. Given that the companies now nearly share private-market valuations, we’d be remiss to not unfairly stack them against one another. Into the breach!

Coinbase @ $100B

Axios’ Dan Primack, a good egg in my experience, got the goods on Coinbase’s historical performance. Summarizing the bits we need, here’s what the crypto exchange got up to recently:

  • Coinbase 2019: $530 million in revenues, $30 million in net losses.
  • Coinbase 2020 Q1-Q3: $691 million in revenues, $141 million in net income.

It’s simple to take the 2020 data that we have and extrapolate it into full-year data. Indeed, you get revenues of $921.33 million and net income of $188 million. Compared to its 2019 data, Coinbase would have managed around 74% growth while swinging steeply into the profitable domain.

That’s a killer year. But it’s actually a bit better than we are giving Coinbase credit for. Poking around volume data compiled by Bitcoinity.org, Coinbase had its biggest period of 2020 in terms of bitcoin trading volume in the fourth quarter. Thinking about Coinbase’s 2020 from a trading perspective using the same dataset, it had a great Q1, more staid Q2 and Q3, and a blockbuster Q4 that ramped to record highs at the end.

As Coinbase’s Q4 appears so strong thanks to trading data — the company generates fees from crypto trading and conversions — we can reckon that our full-year revenue estimate of $921.33 that we came to by sheer extrapolation is likely conservative. It’s not impossible to see Coinbase racking up $1 billion in 2020 revenue.

At which point it would still be valued at 100x revenue at its new valuation. Nonrecurring revenue, I’d race to add.

Coinbase’s profitability helps make its revenue multiple more palatable. And if you used a run-rate revenue statistic yanked from the presumed-to-be-good Q4 2020, Coinbase would be priced at less than 100x revenues. But it’s still a rich valuation no matter how you slice it.

A good question, then, is what is happening to Coinbase now. Is the company seeing more and more bitcoin trading volume in Q1 2021, data that could imply continued growth into the first quarter of the new year, thus cutting its run-rate-revenue-multiple at the $100 billion mark down even more?

Kinda? Maybe? Certainly Bitcoinity shows that the first two weeks of 2021 were bonkers good for bitcoin trading volume at Coinbase, but since then the same volume data has slipped. It remains at historically elevated levels at Coinbase, a very good sign, but the trend itself is bad.

In more normal times that could be a sign for investor caution when it comes to future growth expectations. But it’s 2021, better known as 2020: Remixed, so there’s little reason to think that investors won’t look at the company’s Q4 and overindex a bit.

All this trading in Coinbase stock, Primack notes, “was to help Coinbase determine a reference price” for its impending direct listing. I’m not sure if the company had these numbers in mind. But it appears that there is plenty of hype for the company, perhaps above its fundamentals.

Now, Stripe. When Stripe’s possible $100 billion valuation came to light last November, this is what The Exchange had to say:

Recall that Square and PayPal earnings pointed to strong payments volume in recent quarters, which bodes well for Stripe’s own recent growth. Also note that 14 months ago or so, Stripe was already processing “hundreds of billions of dollars of transactions a year.”

You can do fun math at this juncture. Let’s say Stripe’s processing volume was $200 billion last September, and $400 billion today, thinking of the number as an annualized metric. Stripe charges 2.9% plus $0.30 for a transaction, so let’s call it 3% for the sake of simplicity and being conservative. That math shakes out to a run rate of $12 billion.

Now, the company’s actual numbers could be closer to $100 billion, $150 billion and $4.5 billion, right? And Stripe won’t have the same gross margins as Slack.

But you can start to see why Stripe’s new rumored prices aren’t 100% wild.

From Q3 to Q4 PayPal grew its “Total Payment Volume” or TPV, from $247 billion to $277 billion. A perfect comp for Stripe volume? Nope. But an indicator of how quickly the world of online payments is growing? Yep.

Which begs the question, presuming that Stripe is growing as quickly as we think that it is, if Coinbase is worth $100 billion, why is Stripe only worth $115? I have no idea which price is wrong, but it would feel very weird if they were both right.

More as we have it, but this is going to be a really fun next few months.