Nobody Knows What Anything Is Worth, Software Edition
Coinbase Completely Crushed the most recent quarter. The results were way above street expectations, with the US crypto exchange posting net income of $2.49 billion, net income of $840 million and adjusted EBITDA of $1.21 billion. In comparative terms, Coinbase’s fourth quarter 2021 results outperformed full-year 2020 results by a huge margin.
And yet Coinbase’s stock is up just over a point in pre-market trading, and the company is worth about $70 a share less than its direct reference price; Coinbase is also down about 57% from recent highs. The company’s incredibly profitable 2021 — net income of $3.62 billion from $7.35 billion in total net sales — has resulted in a less valuable Coinbase, at least according to recent trading.
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For a company worth $8 billion in 2018, a market cap of $47 billion in 2022 is far from a failure. But it’s still a fraction of what Coinbase was worth a few months ago and around the time of its public market debut.
Nobody knows what anything is worth.
It’s a theme we’ve touched on before, but a recent price review of the entire technology market makes the point clear again.
However, there’s more to it than just Coinbase, even if it’s curious that it seems to be valued at a gain several today more than one revenue multiple. The Rise in SaaS Valuations Is Back to Earth, With Altimeter Capital’s Jamin Ball reports this week that “the burgeoning multiples of software revenues have now normalized to where they were pre-covid for the first time since the start of the pandemic.”
The former venture capitalist also writes that the fastest-growing cohort this year has “outperformed low- and medium-growth software companies.” It’s a season in reverse when it comes to what software companies are worth, with growth premiums falling sharply.
I think this is why we are seeing reports of the capital guns pulling out of such deals in late 2021. Tiger, D1, and others bet they could flood the mid- and later software markets with capital — and reap the rewards as their portfolios followed an open IPO window to welcoming public markets. Had the IPO window stayed open and software valuations hadn’t fallen so much in just a few months, the strategy could have paid off incredibly in the short term.
However, the opposite happened. So where are the late-stage startups? In trouble, I guess.
Are they really in trouble, or are you just pessimistic on a Friday, Alex?
I hear you, but take a look at Ball’s following chart: