Ethereum Hits New ATH: Maintaining OW & Issuing $10.5k Target As Web 3.0 Blockchain Computing Looks Set To Disrupt The Cloud
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Ethereum (ETH) reached a new all time high of $1,440 today, passing the previous high set during January 2018 at the peak of the crypto bubble. We’ve been recommending an overweight in Ethereum since April 2020 and continue to see upside. We continue to believe Ethereum fundamentals are incredibly strong and think ETH represents the best risk / reward investment play in crypto. Web 3.0 blockchain computing may be the future of cloud in our view. Ethereum is now capturing a notable share of the cloud market. ETH transaction fee revenue has been growing at 1099% 5-year CAGR and finished 2020 at ~$600M. During 2021 YTD, ETH has already recorded $180M in cloud revenue, implying an annualized $3.9B by FY 2021. We believe Ethereum should be valued like a cloud 1.0 stock. On a growth adjusted basis, we calculate Ethereum is 1/8th the price of the BVP Cloud Index. Based on our analysis, we are issuing a $10,500 price target on Ethereum (ETH) which represents ~650% upside from current levels.
- Web 3.0 blockchain computing may be the future of cloud: Smart contract platforms like Ethereum are enabling a new version of the internet. Web 3.0 blockchain networks give users connected edge computing, trustless community-owned protocols in replace of platforms like Facebook, privacy control over data and AI, and crypto DeFi natively imbedded into the internet. Computing has gone in trends from centralized to decentralized, and the transition from cloud to blockchain cloud offers the next evolution in this shift.
- Ethereum is the Ant Financial 2.0 of decentralized cloud finance: Ethereum has the largest and most active ecosystem in crypto for blockchain decentralized applications (Daaps). The decentralized finance (DeFi) ecosystem build atop Ethereum offers software automated services borrowing and lending, asset exchange, payments, insurance, and asset management. We view Ethereum as a new type of supper app platform and see it as the Ant Financial of crypto.
- ETH transaction fee revenue of $600M during FY20 on pace to hit $3.9B in FY21: DeFi activity atop Ethereum network has led to material and rapidly growing transaction fee revenue of $600M during 2020. During the first 17 days of 2021, fees have already topped $180M putting Ethereum on pace to capture $3.9B in revenue during FY 21.
- Growing at 500%+ YoY, Ethereum looks undervalued against cloud 1.0 index peers: Trading at ~150B market cap, with $3.9B of estimated revenue, Ethereum offers a 39x price to sales ratio. However, Ethereum revenue trends are vastly outpacing the fast growing and high-flying conventional cloud stocks. Growing at a 1099% 5-year CAGR, and at 1624% year over year from 2019 to 2020, Ethereum is on pace to grow at 554% during 2021. This compares against 21x price to sales multiple and 38% growth for the Bessemer Venture Partners (BVP) Emerging Cloud Index. On a growth adjusted basis, Ethereum trades at a Price-to-Earnings-Growth (PEG) rate of 0.07x vs. 0.55x for the cloud comps.
- Issuing price target of $10,500 which represents 650% upside from current levels: We believe Ethereum could trade in line with cloud 1.0 peers. Based on our analysis, we are issuing a price target of $10,500 for Ethereum, which represents 650% upside form the current price $1,400. We further see ETH as undervalued relative to Bitcoin based on a price to book multiple basis and believe capital flows from Bitcoin could act as a catalyst for higher ETH prices.
- What are the downside risks? Growth doesn’t materialize. ETH 2.0 has a bug or doesn’t happen. Crypto markets overall experience a recession. Investors don’t value Ethereum the same way that we are.
Bottom Line: We remain bullish and overweight Ethereum. We think blockchain computing may be the future of the cloud. We think the trend is in the early innings. Ethereum is showing material and measurable signs of success. We think ETH should trade like a cloud stock and it looks undervalued. We are issuing a price target of $10,500 on ETH.
Key slides from this report…
Crypto Platforms Offer The Next Era Of The Web (Slide 2)…
Cloud to Blockchain Platform & Value Shift Underway (Slide 6)…
Ethereum Has Large & Growing Decentralized Finance Ecosystem (Slide 7)…
Network Generated ~$600M Cloud Fee Revenue During FY 2020 (Slide 8)…
Revaluing Ethereum In Line With Cloud Peers Implies ~$10.5k ETH (Slide 11)…
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