BTIG has initiated coverage for Coinbase at a buy rating. BTIG Managing Director, Research-FinTech and Digital Assets Mark Palmer joins Yahoo Finance Live to discuss.
ZACK GUZMAN: It's been a very interesting week for crypto fans out there. Of course, today we're watching Dogecoin be one of the trending tickers on our site. But also, let's not forget that just a few days ago, we had Coinbase's direct listing setting a record for the largest direct listing ever. The share is open at $381 a share. Since then, we've seen a few analyst reports come out and point to price targets well above that, including $600, $650, and today, an analyst joins us with the price target of $500, talking about the big upside that still might be there for Coinbase.
I want to bring him on now. Mark Palmer is BTIG managing director of research, fintech, and digital assets. He joins us now on the phone. And Mark, I mean, when we look at this, your $500 price target comes 16 times multiple on 2024 expected revenues. But when you dig into it, a big piece of your thesis as to the upside is the institutional impact that Coinbase has and how that business is just kind of getting started now.
MARK PALMER: Yes, thanks very much for having me. Good to talk to you. That's absolutely right. The institutional part of the story we think has really not been highlighted to the extent that we believe it will be going forward as the company begins to demonstrate the strength of that platform. To put this in perspective, Coinbase just launched its prime brokerage service in the middle of January. And it wasn't even complete at that point. A big piece of that is a company called Bison Trails that Coinbase acquired in the third week of January.
So, the company has a robust prime brokerage platform, custody, over-the-counter trading, crypto lending, and now staking with the Bison Trails acquisition. To really emphasize one part of this, securities lending is a huge part of equities prime brokerage on Wall Street, a very profitable business. Coinbase is extremely well positioned to do effectively the same thing, but with crypto lending. To hedge funds and other investors, they are the safe haven in the space. They have cooperated with regulators. They've never been hacked. There's very little career risk for an institutional investor in deciding to partner with Coinbase. That, we believe, is going to translate into some big numbers for that business over time.
AKIKO FUJITA: What kind of numbers are we talking about, Mark? I mean, when you look at Coinbase in relation to some other IPOs we've seen this year, you've highlighted the fact that this is a company that was profitable. But critics would argue, well, sure, it was profitable in a year when we saw a huge surge in Bitcoin. When you talk about the sustainability aspect, with the money coming in from the institutional side, can you put a number on how significant you think that upside looks like?
MARK PALMER: Yeah, sure, happy to. It's really not about institutional trading. And I think that's where some of the confusion comes in because people focus on institutional trading and the fact that the margins are extremely thin. And they say, OK, what really matters here? We're focused on the institutional subscription and services revenue. It's the ancillary services that are really going to make the difference. We project that those are going to grow at the top line more than 30% from '21 through '25. And we may be very conservative in that regard.
So I think that's really important. With regard to margins, the company posted a 63% adjusted EBITDA margin in the first quarter. We do not believe that's sustainable. The company has said so simply because they're in growth mode. They're out there. They're going to be spending on sales, marketing, technology. It's a land grab. And they are going to be spending to execute on that land grab.
What's important, though, is that the company in the first quarter demonstrated what the margins could be in the future when this is a mature business. A 63% adjusted EBITDA margin is basically in the same context as a CME group, you know? So they don't need to print those margins. We wouldn't as analysts want them to print those kind of margins in the near term. We want them to go after the top line growth. And that's what they're going to do.
ZACK GUZMAN: Yeah, outside of the institutional focus here, I mean, I wonder what the other biggest catalysts might be, given, you know, we talk about active traders and the gains there and people coming to cryptocurrencies. Obviously, Dogecoin right now, I think, driving a lot of adoption from people who may have been outside some of those more-- I don't know-- shall we say, looked-at projects.
But when you look at maybe what those drivers might be, you've got to pair it with the downside risks. And we keep going back to how levered this company is to crypto, obviously. And why this might be a better play than just owning Bitcoin or Ether or some of the other ones outright, given that we've seen how revenues can take a hit in prior downturns in the crypto space. So how do you pair those things?
MARK PALMER: Well, we fully acknowledge that this is a play on the ongoing growth and adoption of Bitcoin and other digital assets. That is what it is. And so there is going to be volatility that goes along with that. But frankly, this is a company that had 11.3% share of all the world's crypto assets at the end of the first quarter. And the total market cap of all crypto is $2.1 trillion. If that grows to $10 trillion, $20 trillion, 30 trillion as adoption increases, and Coin is able to maintain anything close to its current market share, the upside is going to be enormous.
So this is one where, yes, there could be some swings in the near term. But over time, the company is extremely well positioned to benefit from the growth and adoption of digital assets in a way that not a lot of other vehicles will.
ZACK GUZMAN: Well, I mean, there's a lot of excitement around this space right now. We'll see how it goes, still in the early days. But appreciate you coming on here to talk about where we could see Coinbase trade here in the interim. Appreciate you taking the time. Once again, Mark Palmer from BTIG, managing director of research, fintech, and digital assets.