Perhaps the winter metaphor is being overplayed?
Crypto is out of favor, or is it?
Valuation is a complicated topic, particularly for early-stage businesses focused on emerging markets like crypto or, the more in vogue term today, digital assets. Liquid public equity markets, like those that exist for the group of public crypto companies on the left, provide a real-time consensus of “fair” valuation from a large number of both institutional and retail investors. So what does the market say about our currently “out of favor” sector? Actually very positive things, perhaps surprisingly.
Most would consider Block (formerly Square) to be an attractive, financially successful and well-run business, we certainly do. In fact, they have a $33 billion enterprise value which is far above all of the other companies we track. However, what really matters is placing the enterprise value in the context of the economic engine that the business represents. This is often done by considering the company’s value compared to revenue, earnings before depreciation, interest and tax (EBITDA), earnings before interest and tax (EBIT), or net income. To keep things simple, Block trades at 1.6x estimated 2023 revenue. While Block has a good crypto asset-centered business, it’s relatively small.
Now let’s consider Coinbase, a pure-play crypto business that has been facing the strong crypto winter and regulatory headwinds. Coinbase’s enterprise value ($11.5 billion) is ⅓ the size of Block’s but the public equity market ascribes a far superior valuation of 4.1x estimated 2023 revenue.
Perhaps the winter metaphor is being overplayed?