Going direct

Nasdaq said on Wednesday morning that Coinbase’s shares were worth $250 each, a valuation of $66.4bn.^{4Renaissance CapitalCoinbase's Nasdaq reference price is set at $250 ahead of direct listing14 Apr 2021} Trading opened at $381, 52% higher.^{5The BlockCoinbase's first day on Nasdaq ends with an $85.7 billion valuation14 Apr 2021} The price touched $429.54, fell to $310 in the final hour and closed at $328.28, which valued the firm at about $85.7bn on a fully diluted basis.^{5The BlockCoinbase's first day on Nasdaq ends with an $85.7 billion valuation14 Apr 2021} Few companies are worth $19bn more at the close than an exchange said they were at breakfast, and still manage to look as if they have had a bad afternoon.

The $250 was a “reference price”, which Nasdaq publishes only because a direct listing has no offering price. It “does not reflect an offering price, or the opening price”.^{4Renaissance CapitalCoinbase's Nasdaq reference price is set at $250 ahead of direct listing14 Apr 2021} That is the point. Coinbase, the largest American cryptocurrency exchange, did not hire banks to sell its shares to a chosen list of clients at a fixed price. Its prospectus says the resale of existing holders’ stock “is not being underwritten by any investment bank”, and that the company will not “receive any proceeds” from it.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021} Anyone with a brokerage account could place an order in the opening book.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021} The SEC declared the registration effective on 1 April, and trading began on the 14th under the ticker COIN.^{3Coinbase Investor RelationsCoinbase Announces Effectiveness of Registration Statement and Anticipated Listing Date of its Class A Common Stock on the Nasdaq Global Select Market1 Apr 2021,6The BlockCoinbase's direct listing on Nasdaq planned for April 141 Apr 2021}

We think the method deserves to spread. An underwritten flotation asks a bank to pick a price, then to allocate shares to its favoured customers at that price. If the shares jump, as many do, the gain goes to those customers and the money left on the table is the company’s. A direct listing lets buyers and sellers find the price in public. Coinbase is also the sort of firm that can afford to try it. It earned $322.3m on revenue of $1.28bn in 2020, against revenue of $533.7m a year earlier.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021} Its estimated revenue for the first quarter of 2021 alone was about $1.8bn, more than the whole of the previous year, with net income of $730m-800m.^{2Coinbase Investor RelationsCoinbase Announces First Quarter 2021 Estimated Results and Full Year 2021 Outlook6 Apr 2021} Assets on the platform rose from $90.3bn at the end of 2020^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021} to $223bn.^{2Coinbase Investor RelationsCoinbase Announces First Quarter 2021 Estimated Results and Full Year 2021 Outlook6 Apr 2021} The company counted 56 million verified users, up from 43 million at the end of 2020.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021,2Coinbase Investor RelationsCoinbase Announces First Quarter 2021 Estimated Results and Full Year 2021 Outlook6 Apr 2021} A firm that profitable can list to give its staff and early investors a market for their shares, not to fund itself.

The strongest objection is the one the prospectus makes against itself. With no underwriter to stabilise the price, it warns, trading in a direct listing “may be more volatile” than in an ordinary offering.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021} Wednesday’s range, from $310 to $429.54, is a fair illustration.^{5The BlockCoinbase's first day on Nasdaq ends with an $85.7 billion valuation14 Apr 2021} Sceptics add that the price found on the day reflects a crypto boom as much as a business, and that Coinbase’s income depends on trading fees, which depend on the mood of speculators. Transaction revenue was more than 96% of net revenue in 2020.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021}

Both points are true, and neither is an argument against the method. Volatility is what an unmanaged price looks like. A banker’s fixed price would not have removed the risk, only hidden it from the first buyers and handed the difference to a few of them. Nor can the listing be blamed for the business model. The reliance on trading revenue was disclosed in the S-1, and anyone buying at $381 could read it.^{1SEC EDGARCoinbase Global, Inc. Form S-1 registration statement25 Feb 2021} Bad judgment about a stock is the buyer’s affair. A market that lets him make it, in public, is doing its job.

The price will settle somewhere, as prices do. Coinbase has made a $66bn company’s debut look like an auction. Bankers, who have long preferred such events to look like a favour, will have noticed.