Coinbase Global Inc. filed to go public with the Securities and Exchange Commission on Thursday, becoming the most prominent cryptocurrency-focused company to tap the public markets.
Coinbase, the largest U.S.-based cryptocurrency exchange, has emerged as one of the most recognizable names in the industry, with more than 43 million verified users, and about 2.8 million that use the company’s trading platform monthly.
The filing reveals how much Coinbase’s business is tied to the ebbs and flows of the bitcoin market. Its revenue more than doubled to $1.3 billion in 2020 amid a bitcoin rally, while it posted a profit of $322 million. In 2019, when bitcoin trading was weak, it had a loss of $30 million on $533 million in revenue.
Coinbase had said in a December blog post that it filed confidentially with the SEC to go public. Shares will be listed on the Nasdaq Global Select Market via a direct listing under the ticker symbol COIN.
Direct listings differ from traditional initial public offerings in that companies take their shares to the stock market directly. Companies are able to save money that in a more traditional IPO would be shelled out to investment banks. This option to go public isn’t as common as traditional IPOs.
Coinbase was founded in Silicon Valley in 2012 by
the current chief executive, and
a former president and current director. It has grown from a startup project to a company with about $90 billion in assets under its custody and customers in more than 100 countries.
Those customers include more than 7,000 institutions, including hedge funds, trading firms, family offices and corporations, the company said.
The company didn’t disclose how many shares it intends to sell, or at what price, though it did say that it will authorize up to 10 billion Class A shares and 500 million Class B shares. There are currently 21 million Class A shares outstanding and 165 million Class B shares outstanding. It noted there are about 430 shareholders on record.
The executive officers and directors currently hold about 53% of the Class A shares and 54% of the Class B shares. The largest single Class A shareholder is the venture-capital firm Andreessen Horowitz, with about 25%. It also holds 14% of the Class B shares. Firm co-founder Marc Andreessen is a board member.
Mr. Armstrong owns 11% of the Class A shares and 22% of the Class B shares. Mr. Ehrsam owns 11.4% of the Class A and 9% of the Class B.
The company also noted that in both August and September of 2020, about 1 million shares were traded privately, at a price of $28.83. It didn’t specify whether the shares were Class A or B.
In a letter included with the prospectus, Mr. Armstrong said Coinbase has an ambitious goal. The existing financial system is weighed down by “high fees, delays, unequal access and barriers to innovation,” he said. Bitcoins and the technology behind it, broadly called blockchain, can “create more economic freedom for every person and business.”
The company is focused on investing for the long term, he said. While it may be profitable at high times, like the current environment where bitcoin is trading at or above $50,000, it will likely lose money during downturns in the crypto markets. “Our goal is to roughly operate the company at break even,” he said.
Bitcoin prices have surged since the beginning of last year when they traded around $7,000. The digital currency peaked above $58,000 on Sunday and ended Thursday at about $48,000, according to CoinDesk.
Bitcoin’s stratospheric rally, however, masks real risks, both for investors and Coinbase. The company noted that its revenue is completely dependent on the crypto market, which is still extremely volatile. “Our operating results have, and will continue to, fluctuate significantly from quarter to quarter in accordance with market sentiments,” the company said in the filing.
If the price of bitcoin or other assets Coinbase trades were to do down significantly, the company’s business would suffer, it said.
Bitcoin’s price has substantially fluctuated over the years. Between November 2013 and September 2015 the price fell 78%. Between December 2017 and January 2019 the price fell more than 80%. Even after it recovered that year, trading didn’t, a large reason why Coinbase lost money in 2019.
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