What about future valuation?
Andreesen Horowitz was the lead investor in both the Series A and B funding rounds. The company is also backed by well-known blockchain venture capital funds such as Coinbase Ventures, Blockchain Capital, Foundation Capital, Coatue Management or Paradigm.
To date, Opensea has raised $423 million in funding. The latest “round” took place on January 4, 2022. At that time, OpenSea completed a $300 million Series C funding round, led by Paradigm and Coatue. This round brought the company’s valuation to $13.3 billion. The goals of this new round is to accelerate product development, improve security and customer relations, invest in the decentralized web, and recruit. OpenSea does not mention an external growth strategy, but according to the Axios website, the marketplace is reportedly in negotiations with Dharma Labs, a cryptocurrency wallet.
Since the January Series C, OpenSea’s valuation has continued to rise. It is now estimated to be worth $16 billion.
For most investors, an IPO in late 2023/early 2024 is a distinct possibility. Assuming a doubling of revenues every year between 2021 and 2024, revenues could reach between $3.5 and $4 billion by 2024. Based on an Enterprise Value to Revenue multiple of approximately 8x to 10x (industry average), OpenSea could then claim a valuation range of between $28 and $40 billion by the end of 2024.
Limits and weaknesses
According to OpenSea, more than 80% of the NFTs created for free on the platform are plagiarized. This is a mechanism that allows users to avoid paying fees for the use of the blockchain on which the tokens are created (usually Ethereum, whose fees are relatively high), and to have them borne by the buyer of the NFTs. With this solution, fraud costs nothing to those responsible.
The figure of 80% of plagiarism seems very high and is a danger for the legitimacy and durability of the model. Faced with this observation, OpenSea first announced on January 27 that it would limit the creation of free NFT collections to 5 per user, and 50 NFTs per collection. This decision led to a wave of protests, which led OpenSea to back down. However, the platform indicated on Twitter that it was considering other solutions to counter fraudsters and protect creators.
Another challenge for OpenSea is the recent loss of momentum of NFTs. As the chart below shows, Google searches targeting NFTs have been declining sharply in recent weeks and may indicate a waning investor interest in NFTs (although it can be explained by the fact that people are now more aware of NFTs than before…).
Opensea’s business model is highly dependent on NFT trading volumes and therefore on the rate of growth of the industry. Any slowdown has a direct impact on the company’s valuation.
Conclusion
While Opensea’s revenues are growing tremendously, the New York-based company also faces many challenges. NFTs remain a relatively young and potentially highly volatile asset class. Another “crypto-winter” (sharp decline in cryptoassets) would certainly have a very significant impact on Opensea’s valuation. Cyber attacks and security breaches on the platform could also damage the company’s reputation and lead to an exodus of customers. Another risk related to NFTs is its uncertain regulatory landscape. For example, the status of certain digital assets is not yet well defined by the regulatory bodies (government, SEC, etc.).
Regarding the competitive aspect, OpenSea could face the arrival of many new decentralized platforms. As mentioned above, the leading crypto exchange Coinbase intends to launch its NFT exchange this year, following in the footsteps of FTX and Binance.
Despite these risks and threats, Opensea is definitely attractive to investors looking for very high potential (non-listed) companies. As mentioned above, NFTs are benefiting from several favorable winds such as the strong growth in demand but also the development of the Metaverse. In this context, Opensea could take advantage of its status as a first entrant and the famous “network effect”. With over 65% market share, OpenSea has a dominant position in a market whose addressable size is currently estimated at $18 billion. OpenSea would already be profitable, and while commissions charged may decrease in the future, OpenSea’s profitability could continue to increase due to the explosion in volumes. All of these elements could change quickly as this industry is evolving at a rapid pace, making any projections very hypothetical.
