Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

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In this insight, we revisit our valuation of <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> post the Bitcoin plunge. Among many calls on IPOs/direct listings this year, Coinbase has been our most bearish call.
On the first day of direct listing, Coinbase's share price reached as high as $112 billion ($429.5). Coinbase's share price has fallen to $224.8 per share (market cap of $58.9 billion). Although Coinbase's share price has fallen more than 40% since the highs in the first day of trading, we believe there is a further downside risk to this story. Our base valuation suggests a further 30%+ downside risk to Coinbase from current levels. 
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In this insight, we revisit our valuation of Coinbase (COIN US) post the Bitcoin plunge. Among many calls on IPOs/direct listings this year, Coinbase has been our most bearish call.
On the first day of direct listing, Coinbase's share price reached as high as $112 billion ($429.5). Coinbase's share price has fallen to $224.8 per share (market cap of $58.9 billion). Although Coinbase's share price has fallen more than 40% since the highs in the first day of trading, we believe there is a further downside risk to this story. Our base valuation suggests a further 30%+ downside risk to Coinbase from current levels. 


Revisiting Our Valuation of Coinbase Post Bitcoin Plunge

Equity Capital Markets

Founded in 2003 by the CEO Anthony Casalena, Squarespace is getting ready to complete its direct public listing on May 19 on the New York Stock Exchange. Squarespace raised $300 million ($68.42 per share) in March 2021 from investors including Tiger Global, D1 Capital Partners, and Fidelity Management &amp; Research Company, valuing the company at nearly<a href="https://www.reuters.com/article/us-squarespace-funding-idUSKBN2B832O" target="_blank" rel="noopener"> $10 billion. </a>Other major investors of the company include Accel, Index Ventures, and General Atlantic. Squarespace joins a list of numerous technology companies that have become public through the direct listing route, including <a href="https://www.smartkarma.com/entities/palantir-technologies-inc" target="_blank" data-smartkarma-citation="entities:27728:1" rel="noopener">Palantir Technologies Inc (PLTR US)</a>, <a href="https://www.smartkarma.com/entities/roblox-corp" target="_blank" data-smartkarma-citation="entities:29697:1" rel="noopener">ROBLOX Corp (RBLX US)</a>, and <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a>. Squarespace's shareholders have registered to sell about 40.4 million common shares with the CEO Anthony Caslena holding a 68.2% stake. Squarespace is a one-stop-shop platform for websites creation, domains, e-commerce, and marketing tools for companies and organizations to manage their social media presence. The company generated sales of $621.2 million in 2020, up 28.1% YoY. Its sales growth accelerated by 31.3% YoY to $179.7 million in 1Q 2021. Although the company benefited from higher sales and gross margins, its operating margins declined from 12.7% in 2019 to 6.5% in 2020, which was caused by higher R&amp;D and sales &amp; marketing expenses.

Founded in 2003 by the CEO Anthony Casalena, Squarespace is getting ready to complete its direct public listing on May 19 on the New York Stock Exchange. Squarespace raised $300 million ($68.42 per share) in March 2021 from investors including Tiger Global, D1 Capital Partners, and Fidelity Management &amp; Research Company, valuing the company at nearly $10 billion. Other major investors of the company include Accel, Index Ventures, and General Atlantic. Squarespace joins a list of numerous technology companies that have become public through the direct listing route, including Palantir Technologies Inc (PLTR US), ROBLOX Corp (RBLX US), and Coinbase (COIN US). Squarespace's shareholders have registered to sell about 40.4 million common shares with the CEO Anthony Caslena holding a 68.2% stake. Squarespace is a one-stop-shop platform for websites creation, domains, e-commerce, and marketing tools for companies and organizations to manage their social media presence. The company generated sales of $621.2 million in 2020, up 28.1% YoY. Its sales growth accelerated by 31.3% YoY to $179.7 million in 1Q 2021. Although the company benefited from higher sales and gross margins, its operating margins declined from 12.7% in 2019 to 6.5% in 2020, which was caused by higher R&amp;D and sales &amp; marketing expenses.

APAC IPOs & Placements

Zhen Zhou, Toh

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Kakao's founder, Kim Beom-Su, is looking sell about US$450m worth of shares. In this note, we will share our thoughts and run the deal through our ECM framework.  We have covered earlier placements in:<ul>
<li>
<a href="https://www.smartkarma.com/insights/kakao-corp-placement-a-quick-trade-post-solid-4q-results" target="_blank" data-smartkarma-citation="insights:29848" rel="noopener">Kakao Corp Placement - A Quick Trade Post Solid 4Q Results</a> </li>
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<a href="https://www.smartkarma.com/insights/kakao-corp-placement-poor-track-and-seems-to-be-an-unexpected-deal" target="_blank" data-smartkarma-citation="insights:9804" rel="noopener">Kakao Corp Placement - Poor Track Record and Seems to Be an Unexpected Deal</a> </li>
</ul>

Kakao's founder, Kim Beom-Su, is looking sell about US$450m worth of shares. In this note, we will share our thoughts and run the deal through our ECM framework.  We have covered earlier placements in:

Kakao Corp Placement - A Quick Trade Post Solid 4Q Results 

Kakao Corp Placement - Poor Track Record and Seems to Be an Unexpected Deal 


Kakao Corp Placement - Selldown by Founder

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Coinbase Global  / Equity Capital Markets

We previously showed that Coinbase’s revenue was highly correlated with average bitcoin prices during the quarter in <a href="https://www.smartkarma.com/insights/coinbase-ipo-why-you-can-justify-a-100bn-valuation-if-you-want" target="_blank" rel="noopener">Coinbase IPO – Why You Can Justify a $100bn Valuation… If You Want | Smartkarma</a>. We have now improved correlations further by incorporating Ethereum prices. Based on these correlations and the also tight correlations between revenue and OP we provide investors with some simple theoretical stock price calculations.

We previously showed that Coinbase’s revenue was highly correlated with average bitcoin prices during the quarter in Coinbase IPO – Why You Can Justify a $100bn Valuation… If You Want | Smartkarma. We have now improved correlations further by incorporating Ethereum prices. Based on these correlations and the also tight correlations between revenue and OP we provide investors with some simple theoretical stock price calculations.

Coinbase DPO – A Guide to Implied Prices Based on Bitcoin and Ethereum Prices

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In the direct listing on 14 April, Coinbase is aiming for about $100 billion in valuation. In 1Q 2021, it had sales of $1.8 billion and high end net profit of $800 million. If we annualize these figures, this would result in annual sales of $7.2 billion and annual net profit of $3.2 billion. These are phenomenal figures. At $100 billion valuation, this would suggest a P/E of 31x. Many investors would be comfortable with these kind of multiples as being reasonable. 
All in all, we stick with our original thesis and valuation on Coinbase over a one year view. Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 60% lower than the $100 billion value that Coinbase is trying to aim in this direct listing. 
In terms of short-term trading post IPO, given the excellent 1Q 2021 results, we believe that the company's valuation could indeed reach $100 billion. However, we believe this kind of valuation to be short lasting. Over a longer view (one year), we believe there is a higher probability that the company's valuation declines to our base case level (about $40 billion). This will become more evident as numerous other competitors offer extremely low pricing and many customers switch to their services. 
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In the direct listing on 14 April, Coinbase is aiming for about $100 billion in valuation. In 1Q 2021, it had sales of $1.8 billion and high end net profit of $800 million. If we annualize these figures, this would result in annual sales of $7.2 billion and annual net profit of $3.2 billion. These are phenomenal figures. At $100 billion valuation, this would suggest a P/E of 31x. Many investors would be comfortable with these kind of multiples as being reasonable. 
All in all, we stick with our original thesis and valuation on Coinbase over a one year view. Our valuation analysis suggests a range of $31.9 billion to $47.9 billion in market cap for Coinbase. Our base case valuation of Coinbase is $39.9 billion, which is nearly 60% lower than the $100 billion value that Coinbase is trying to aim in this direct listing. 
In terms of short-term trading post IPO, given the excellent 1Q 2021 results, we believe that the company's valuation could indeed reach $100 billion. However, we believe this kind of valuation to be short lasting. Over a longer view (one year), we believe there is a higher probability that the company's valuation declines to our base case level (about $40 billion). This will become more evident as numerous other competitors offer extremely low pricing and many customers switch to their services. 


Coinbase: Excellent 1Q 2021 Earnings, But Is It Sustainable?

United States

Coinbase Global, Inc. provides financial solutions. The Company offers platform to buy and sell cryptocurrencies. Coinbase Global serves clients worldwide.

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Coinbase Global (COIN US)

Revisiting Our Valuation of Coinbase Post Bitcoin Plunge

In this insight, we revisit our valuation of Coinbase (COIN US) post the Bitcoin plunge. Among many calls on IPOs/direct listings this year,...

Douglas Kim

Squarespace Direct Listing Preview

Squarespace is getting ready to complete its direct public listing on May 19 on the New York Stock Exchange. In this insight, we provide the key...

Douglas Kim

Kakao Corp Placement - Selldown by Founder

Kakao's founder, Kim Beom-Su, is looking sell about US$450m worth of shares. In this note, we will share our thoughts and run the deal through our...

Zhen Zhou, Toh

Coinbase DPO – A Guide to Implied Prices Based on Bitcoin and Ethereum Prices

Based on bitcoin and ethereum prices and our derived correlations for Coinbase's revenue and expenses we provide estimates of Coinbase's...

Mio Kato

Coinbase: Excellent 1Q 2021 Earnings, But Is It Sustainable?

Coinbase (COIN US) reported excellent 1Q 2021 earnings today ahead of its IPO listing on April 14th. We provide an updated view on this direct...

Douglas Kim

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