Is OpenSea an Undervalued NFT Marketplace?

Without a doubt, 2021 is an important year for non-fungible tokens (NFTs) OpenSea. The emerging market has seen unprecedented growth with sales reaching nearly $ 10 billion to date – a 14.50% increase from 2020. The NFT Marketplace is responsible for running one of most of these.

OpenSea controls the majority of NFT sales and has processed over $ 10 billion in transactions since its launch in December 2017. Its volume in 2021 alone even exceeds the revenue of Etsy and is comparable to the revenue of eBay. Even so, it looks like OpenSea and the entire NFT room are just getting started.

In the past 30 days, OpenSea has processed over $ 1.6 billion in transactions, leading all other markets by a wide margin. The NFT game Axie Infinity ranks second at $ 675 million, and CryptoPunks, which has an average retail price of 447 times higher, comes in third at $ 165 million. Surprisingly, Rarible, which was able to keep up in terms of sales in 2020 and even carried out its own financing round this year, pales in comparison to the transaction volume recorded by OpenSea.

The development of OpeanSea

OpenSea didn’t start the year with billions in revenue. From January through July, the market processed an average of $ 106 million in transactions, according to DappRadar. It wasn’t until August that it hit the billion dollar mark amid a resurgence in NFT sales after cooling off from previous highs in May. Revenue for that month reached $ 3.4 billion, up 1.025% from July.

The continued rise in demand despite rising petrol fees has frustrated the growing number of users. OS has solved this problem by integrating with Layer Two Ethereum Sidechain Polygon and has been offering cheaper and faster transactions since July.

While most of the transactions still take place on the Ethereum blockchain, the polygon-based volumes on OpenSea show significant numbers. Data from Dune Analytics shows that around $ 111.5 million in transactions has been processed since September – still less than the volume generated by other markets last month. Active users also exceed 200,000.

In addition, OS has benefited greatly from being a leader in this area and has continuously refined the way users navigate the platform and manage NFTs. Obviously, the concept of NFTs will not be lacking in the success of OS. Digital title certificates for both physical and digital goods offer a new avenue for collectors, creators, and even merchants. For example, NFT has become a way for artists to attribute an element of scarcity to digital works of art, the value of which can be assessed.

How does OpenSea make money?

OpenSea receives a 2.5% discount on every sale. That small commission per transaction enabled OpenSea to reach approximately $ 79 million in revenue at its peak in August, followed by $ 68 million in September and $ 57 million in October. In 2021, OpenSea is estimated to have raised at least $ 235 million with $ 204 million coming in three months from August.

Rating of OpenSea

With all the obvious revenue that OpenSea generates, it’s interesting to see how it compares to similar companies and protocols. When OpenSea launched in 2017, it received $ 2 million in seed capital. But its most recent valuation raised it to unicorn status after a round of funding led by Andreessen Horowitz placed a $ 1.5 billion award on OpenSea.

However, the assessment should be carried out carefully. For one, evaluating a startup can be a challenge mainly due to a lack of historical data. A fairly simple measure is to use the multiples approach. Available sales data and market values ​​of similar protocols and companies can be a useful basis for comparison – that is, their value in relation to the amount earned. And since OpenSea’s market capitalization is not measurable as there is no token offered, the latest round of funding should be used as a proxy.

For example, Rarible charges twice as much as OpenSea but pales in comparison to OpenSea in terms of revenue. As a result, Rarible’s price-to-revenue ratio makes the price seem significantly higher than OpenSea’s. Companies that may have similarities with OpenSea, such as Amazon, Etsy, and eBay, also look significantly more expensive. Even Ethereum looks more expensive than OpenSea with this valuation metric with the high fuel fees it generates from transactions.

However, correcting the number to only take into account the log revenue that OpenSea has made over the past 12 months would give it a multiple of 6.4, making it only marginally more expensive than Amazon and eBay. However, it should be reiterated that OpenSea has generated most of its revenue in the past three to four months. If the sales run rate were used with the last three months of sales data to forecast full year sales, it would translate into sales in excess of $ 800 million. In contrast to the price-to-sales ratio of these other protocols and companies, this would again be undervalued by a multiple of 1.8.

Of course, much of this prediction is based on the assumption that OpenSea will continue to be the number one choice for NFT transactions. The NFTs are proving more than the hype they originally thought when Google’s search for NFTs even hit record highs in November. And if you are more interested in this area, that’s a coincidence. That means more companies are vying for the cake, diversifying NFT sales.

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Solanart, Solana Monkey Enterprise, and Magic Eden are just a few examples of non-Ethereum NFT markets that have taken the top spot for 30-day trading volume. Coinbase Exchange will unleash NFT capabilities on its platform and potentially leave traces in the NFT space. Over 1 million users have signed up for Coinbase’s upcoming NFT offering, well in excess of the 230,000 users who have interacted with OpenSea in the past 30 days.

With this in mind, will OpenSea be able to maintain its lead as the NFT sector matures, or is adoption of another platform just inevitable?

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