By Crystal Tse, Katie Roof
Nasdaq Inc., an exchange that has never hosted a major direct listing, is about test its hand on the most valuable company to go public using one.
Coinbase Global Inc., the largest U.S. cryptocurrency exchange, is set to debut on Wednesday through a direct listing, an alternative to a traditional initial public offering that has only been deployed a handful of times. While Slack Technologies Inc., Palantir Technologies Inc. and most recently Roblox Corp. all listed on the New York Stock Exchange, Coinbase picked the younger bourse known for tech-oriented companies.
Nasdaq on Tuesday 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. Investors will have a better sense of valuation once shares start trading Wednesday.
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. That valuation, based on the $350-a-share that the stock was trading at on the Nasdaq Private Market auction, would make it the biggest company to take the direct listing route to market.
At $250 a share, Coinbase would have a market value of about $47 billion based on the outstanding shares listed in its prospectus. Still, few - if any - trades are likely to happen at that price. 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.
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 that price.
Nasdaq has hosted smaller direct listings by insurance, financial technology and biotechnology companies, but has never before landed a big one. The exchange's ability to provide a private market for the shares, as well as its services that help public companies reach investors, were among its selling points, a person with knowledge of the matter said.
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 said.
Representatives for Coinbase and Nasdaq declined to comment.
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 on Nasdaq, according to data compiled by Bloomberg. That included the third largest, Airbnb Inc.'s $3.8 billion IPO in December, which was the biggest listing on Nasdaq since Facebook Inc.'s $16 billion monolith in 2012.
Putting his trust in the stock exchange is Coinbase Chief Executive Officer 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 the day after bitcoin, which together with Ethereum made up 56% of its 2020 trading volume, jumped to an all-time high. The token hit $63,246 Tuesday, exceeding the previous peak in March. Cryptocurrency-exposed stocks such as Riot Blockchain Inc. and Marathon Digital Holdings Inc. also advanced.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 Commodity Futures Trading Commission 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."When people are considering whether to invest in Coinbase, zoom out and think about what Crypto means for society from here," he said.
Bloomberg