Coinbase Global (COIN) 2 Nov 232023 Q3 Earnings call transcript

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coinbase Third Quarter 2023 Earnings Call.

[Operator Instructions] Anil Gupta, Vice President, Investor Relations, you may begin your conference.

Good afternoon, and welcome to the Coinbase Third Quarter 2023 Earnings Call.

call and Armstrong, and COO; Chief Officer. today's Emilie and Paul on Legal President Choi, Alesia me are Co-Founder Brian CEO; Grewal, Joining Haas, CFO; shareholder had our on Relations website. to I earlier Investor the you've was published all read hope our letter, which today opportunity

cause Before started, concerning factors materially vary from to statements. Information I'd results remind today's other that during these may we we Actual may is could our results uncertainties differ get risks, that and filings. call, SEC make like included you forward-looking to statements. today's in

to Our most non-GAAP discussion today measures shareholder will also GAAP website. comparable our measures. include are the references to on in our certain letter Reconciliations financial provided financial directly IR

to, measures. for not as Non-GAAP measures financial a addition GAAP should be in substitute considered

once post technologies our to We using say enable questions. are shareholders again to

from In research live our analysts. addition, some we'll take questions

that, And it Alesia . Brian to comments. with opening I'll for turn and over

Anil. Thanks,

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us With that, tell QX I'll more performance. hand Alesia our it you, to about to over

Thanks, Brian, and good afternoon, everyone.

and quarter come to Further, QX shared, financially building efficient was multi-quarter Brian As increasingly we of the an initiatives on disciplined we progress where make company. fruition. continue efforts a saw to strong

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both products and price in quarters, QX. changes to pricing our and case for institutional consumer the not impact models may continue was that but We our with future experiment

Overall, balances, services. units $XXX in revenue and growth flat our and saw was an Nat inflows platform. increase to in Turning we and custody. quarter-over-quarter. million, saw We subscription USDC essentially on we now saw of stakes

However, as cap effects offsetting approximately declined this were quarter-over-quarter. unit growth X% price crypto market

expenses operating expenses Expenses did quarter-over-quarter. declined expenses. come were administrative and Technology quarter-over-quarter Now collectively general and $XXX sales down X% and in and to X% development, marketing shifting million. and million, Total to $XXX marketing low QX a shift and from and end $X at timing the driven was was of Net certain by primarily EBITDA of million, outlook adjusted $XXX our to QX. million. in legal loss

X Our QX loss benefited net transactions. from

of had we a the debt impact quarter, First, completed a which $XX million. repurchase in favorable

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Additionally, in which rate. the we tax higher deferred the tax quarter, on contributed evaluation assets, allowance increased to

read letter. effective more in can our You about shareholder rate tax our

Now crypto million. services We're expecting to October October. asset we fourth for material month and outlook approximately or no that QX the I'd our was be assumes conditions our to market change transaction subscription the compared this the In to and to letter, $XXX noted of like revenue revenue to flat turn prices with levels quarter. as approximately

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to slightly expecting due sales expenses between levels expenses certain in that noted and to million, the QX QX $XX shift be from earlier. marketing timing QX to higher I and than We're for million $XX

Just that QX. QX lower ahead is as for sequentially look than I when than SEC, of be noted to higher QX XXXX, we QX will SEC

goal EBITDA to on mentioned, of which just compared basis. an is improvement XXXX we EBITDA in improving I from want adjusted our meaningful to as XXXX adjusted expect prior in to absolute an As Brian deliver XXXX, note

close, performance debt. our was grow business the strong To low QX while ability well total volatility despite to revenue opportunistically the as USDC environment. a our resources We're with our the for as reducing quarter pleased

We're positive will As well of towards we the industry these you a potential inputs next the for for coming catalysts risks. we with we plan next we horizon crypto ahead on the variety look share year, as more wide monitoring quarter. see year, as closely and as

Thank you both.

turn let's that, shareholder questions. with So to

might we as questions the questions combine by of shares, same most determined number the taking upward the themes. We're that and touch on

make platforms is, First significantly question more transaction ETFs at will reducing prices. with lower being to competitive traded consider are Emilie? where other them fees Coinbase

Sure. for the Thanks question.

transaction So to directly, because no plans fees we ETFs. have current answer of to reduce it

If such as find bring we the new should institutions today and ETF economy. entire pie market for and ETF crypto current and you really that just expand a One catalyst with space. zoom despite we've classes into credibility the I to the powerful should out add a market, and that the should asset crypto own little they is XX bit, Americans million crypto gold. be should regulatory see as overhang. Spot Stat people stability increased liquidity seen the positive other

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coin-based when positive per with do see Second share, question, earnings you Alesia?

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a were in adjusted EBITDA consecutive year. this this of million. call, low this XXXX. EBITDA quarter that we on had this we in year we've are earlier You've a to in $XXX meaningful is as volatility. And noted deliver third market that all levels the track positive And this adjusted in positive of multiyear And those excess of at is of all down level of said

innovation to point to strong market continue As product a cycle. a market we in have to we new bring invest believe position the in the result, us crypto to our strategy enable challenging this to future during the in

the as balance we repurchase strong further strengthen -- sheet strength a we have this resources We sheet in $X debt. over U.S. to balance and with billion year

in EBITDA, future and focus. in products with utility that so Adjusted our And crypto. the the expand investing services is trusted to of that,

IRS regulations reporting How question. for is of handling and Next the the Coinbase assets? preparing proposed Alesia? on digital challenges

Well, great a and lot time working this a question, spending is on of this we're internally.

glad here. highlight some chance I'm work to we So of had a the

recently for proposed threatens coffee importantly the reports that platforms with a here, impractical of report that far background I means alone, transaction. billions requirements crypto for rules could want to When IRS par year. for and of proposed The each every that require other believe applications, for Coinbase finance. for reporting regulations. all the Coinbase And I First, to some The be IRS would our reporting share supported those This transaction, unfamiliar every payments, to who crypto IRS includes more objective. I required a the transactions rules to say and . This U.S. because impede using related industry. privacy and to that are cup creates are state adoption it we want we customers' our customers. those crypto transaction that unworkable buy on current tax a would But has admitted NFTs, crypto. example, believe, compliance have to the our reporting on received of broker with of transactions on exchange reportable billion us, we traditional they becomes chain reach everyday X the to these transactions combined. than long proposed for ultimately, huge is of burden we report beyond

the for privacy They dangerous for could set to a people. of nonfinancial and precedent American surveillance transactions of invasion lead

very been here. we've So active

highlighting letter a introducing proposed the and challenges the filed we comment by concerns our regulations. First, raised

associations We comment and with And to working letter hearing We've gain proposed observations concerns the with and provide comments be detailed with encourage far. our an on submitted scheduled at public of trade industry-wide perspective also preparing thousand be regs. We're for letters preparing rules. more peer submitted actually to tens with a testimony made to further and regarding proud public and X. we're the companies crypto aware proposed are IRS comment mobilized of We've shortly so of these oral perspective. recommendations November to IRS lastly, seeing

industry, farmwork rent correct So reporting realistic targets staged think path is with committed towards approach dates towards think this transparency objective. we these the working the to and while effective and we and we broker for well, the remain a purpose

Thank you.

So switch our take Sarah, with and let's from questions please. that, analysts,

from comes JPMorgan. Your Ken the of first line with question Worthington

on dig to further in derivatives. I wanted

and growing derivative the when website. U.S., license derivatives So there mobile, guess, broadly, trading about FTX your that? on you how challenging much how and and importantly, more and marketing the pursue? a on And might how base the Coinbase derivative pressure be then coin we your flow think in you for as outside to growth I volume start given FCM launch of up and got out to on you does inside thinking rolled void that and is Binance about are

can the Yes. I off. Thanks start for question.

So want on out would imagine to give working And several your that people's for I rolling first think actually. mobile. can things on, any of was derivatives the institutions call on X improve it, of that's like both you question part don't really about we're the here, while which and to I dates access kind of retail launch

to Prime be lot have I other our some both so that essentially big work app. infrastructure around into our retail and there's out trusted of Coinbase do integrate fully think provide And still done and to derivatives products, our to a opportunity a products we this. go

our As I And market. trusted mentioned the out player structure by the record care important providing in really way in has being counterparties . Coinbase instance. opening the terms cybersecurity, for I we their this and be and about of can has do people in reputation best of long compliant regulated in that's track an think statements, there a and

before. data pieces shared, Just a haven't few we of that I think,

on a So we've sounds it's onboarding. increasing in like about number, good actually which a notional institutions small. billion also relatively done We've $XX it's been of in space, the that derivative really is start, -- been we've derivatives, QX it's volume the big but number still in but

over been institutions QX, in that now we onboarded. So have have

work it's important can't talked percentage really market lot to and And But we're I we we're but got what I have space going that making trusted launches would really of for of us, the of build. predict come go good to the derivatives what our on in that's with that. progress front about, know infrastructure, So a we've over.

JMP Devin from Securities. line comes question next of Your Ryan with the

you're adoption talk to want and a bit base about the Just little that seeing.

It like really gave a a guys good You sounds start. off to stats there. few

talk are base? attractive to some what we want this to about are biggest just as starts going that that of should ability shows Coinbase also relative of where kind contributor on of be a be think maybe layer think just and to to it geography What bigger become makes going Just hopefully applications X? to to kind you guys the So you. for about monetize up? the How other

Yes.

monetization. then I'll some can So over Alesia the with turn I to of off applications, it talk start about

to There's think I to the anybody clips, predict would and some sitting cases they at there of kind good probably can of broadband when it go was a Netflix been these look predict back enabled. on things video look, So And that all use were that. first kind and introduced sure little be. Uber if because they predicting and and look people tried would silly bit Internet, what I'm have was hard we the

make an excited today, on or So definitely here, to cases there's a think little -- takes of minutes anywhere $XX area need to necessarily second. that $X can because costs periodically. use kind about between that They trading I if Layer trading want you is just say it to bit payments, one predictions serving don't because but these might instance, could a and firm -- we're X and so transaction, it around for I hour to don't be people any make about do confirm it to from every do if

like cases use served has LX so trading well. And

But really global if have everyone network, and to fast build you're that cheap. it payment to trying happen benefits a

you're for confirmation few instance, of merchant hit send, a to So you at ideally the and kind within up want seconds. you show a if

be XX like to want sitting minutes that. for or something don't You ready

the applications by mean applications. could that and created. sort types of whole peer be mean are things, payments It peer. of could variety in a commerce it to are mean third-party mean payments -- could payments It gaps mean new BXB, So It that could It way, like could type these could of right? remittance. being

from went messages I this the magnitude every a saw WhatsApp to of $X.XX what past, X sending in a message free point in sent from at saw day. reduced we it was friction text what's sending text on message a made sent a order like being to message more the is analogy to So we but

could friction magnitude on if down the order X, you see more of these an think happening layer transactions bring I And payments chains. you or transactions of these on

be of we all that know good for, as of I adoption but don't mentioned. the seeing we early will are things base, exactly used it Now

than had summer. we've quite is So more for still mentioned Onchain platform up transacting new have already. been million base and in got last instance, locked wallets on million over $XXX the X during the month, assets million

of So that's sign adoption. a great

kind applications, see new different types this it of is we'll rise this of talk X the to of that and top. Hopefully, -- about Alesia, new want which with thousands introduced is . efficiency Layer to monetization? creates you

I'll just quickly on add here, Brian.

So and both a base directly fees. sequencer On we monetize indirectly. do basis, direct

as We in they are reporting included financial are transaction And our They are to fees. out. today, not material those in statements. enough the fees break consumer transaction early. very It's

Your the [indiscernible]. next question comes of from line

in on platform earlier trading. behavior rates. of drivers our [indiscernible] year important spread in what terms blended shared you is simple are increase where did output we this fee on really We've with of that QX

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a very is think is. I mix that input into what resulting critical rate fee So

get we're but in will customers future conditions. before, time, they behavior it's over we and As this market possible our is and And and talk to how be today, fees seeing transact we've customers, the our of They're shifts how with are choice you said the platform. transparent. on behavior so disclosed about transparent shifts that that our

Joseph from with line question Canaccord. Vafi next the Your of comes

Washington enforcement? regulation the does Maybe like been you team But bit the has latest preoccupied be legislative coming Congress and speaker out like. bullet of a in a could know, on the of environment legislation silver of Brian, ultimately feel the the kind front? us Congress current give from to it by your relative the obviously, could I little with

to Happy give an sure. Yes, update.

focused great So that's the the U.S., we've now. clarity our we've in back we to other a in right clarity. need been the derivatives And think licensure certainly the countries in in of do very make meantime U.S. and more on terms getting still issue although able I major it's holding with get been U.S. to licensing in progress

there's things that a So front. do on few we can

case. of is our One them SEC

the point. crypto. I clarity some is or think with the other . And at there next year hopefully, from courts we'll stand get X the

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if But the to able encourage for I XXX,XXX to haven't. in hand want and And comment say, their to crypto, seen IRS, we've over to people kind with that they out been letters with we've I check raise on stand start drive advocate calling crypto.org, now people of their an representatives be Congress. towards

And talk mentioned, the so what some of the to we've been is about to things Congress them legislation. asking you

who finance technology there stands XXst got through century. committees. is the and that innovation for House bill FXX couple of those a the This don't bills bipartisan support are know, that the So that for there approved are bills of a couple

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get this passing I'm courts that sure through to right. XX have legislation to importantly. We're used million going America happens XXXX more this that And election, whether happens. crypto that Congress through that So sure the will make America optimistic to is are or And the or right. Americans going it's going the make whether get it's

comes the line next with of Your question Barclays. Ben Budish from

to follow the fees. transaction wanted around use up I earlier the on

prepared a fees but mix, said may to You talked of wouldn't response parsing care little in just you said you the about the bit your later raise the then you ETF. the remarks, kind words from Q&A very fees you and raise

guess, maybe future? But . in are them raise but them, about you revenues, just of longer thinking thinking of approach words, and the optimizing So know recently may -- you us I may you volumes, I about balancing there? if perhaps I more could don't changed guess, about volume to and remind mean to the your considerations you how are mean output no for how the think them. what are the potentially you lower adjusting like you've you misinterpret sort I

strategy best product Experimentation our been has customers. experiment pricing long of for model to increasingly around works part which strategy part our and our of

continued Quite example, see many for Point started ways, we're One One in of proud to experiment growth base a the and pricing in quarters. many So as

in within spread we our this customer year, As and change fees Trading, in we on not QX raised we shared see result a did behavior of any as that. of Simple our

over And answer best products our may engagement works we continue learn just question may on ultimately to drive decrease to platform. to will we and then and we is, customers revenue so for other in what time your increase, our

The driver. is and of driver And we comment our as that environment Emilie's is strategies overall speaking ETFs, very that our take competitive input necessarily and engagement overall experiments. is not customer all to we inform what with products, to a broadly, say on specifically to pricing wanted what

question the with next Owen line Lau from of Your Oppenheimer. comes

continue quarter is in second. you think, manage to the the sequentially, compared though headcount, I even third the expense to the higher So down

Your our guidance will because in continue expense indicates that can the mentioned stock-based to growth please quarter international you other in how in guidance also expansion talk you can manage about will growth go the And impact of levers the some or down to it comp? And term? fourth initiatives there's near pull well. will you any But other and Alesia, expense as if quarter also, first expand?

Thanks, Owen.

a allocation As is has our focus financial it compensation we prudent nonlinear The expenses. this stock-based underlying year, has discipline and our of been here on said recognition. theme expense around

going to QX if you QX and what you was so stock-based to And half the look different be similar compensation second that quarter we first going back were have shared although with very half, to levels. the the is

the we the the international quarter. growth expense driving QX and occurring provided that outlook so lot see is a new for that the in Broadly, in all reduction expense fourth innovation product though, and just we seasonally natural comp is envelope stock-based the QX. of within And

resources a are We've of of you experiment company products, things. of our and lot shared fast, talked kind our so of with our with to lot expenses -- try strategic to a model stage. newest roughly fail XX going continue of XX% core to that allocating new or we about our very product and innovation a importance a is early initiatives Brian's the to and is our aligned before XX-XX-XX approach XX% venture XX% with

ability included feel that's So really invest in growth, we more good that in and a continue to invest in to about adjusted our outlook, generating building EBITDA that's efficient. while company and financially all innovation positive

Needham Your next of line Company. Todaro & from comes John the question with

leaving understanding the Dexus that other for another for maybe users interface down venue? users versus some to the take advanced But simple going advanced are to a just to go X I Sorry reason, simple. using it trading the wanted so asking advance are on rate. Is or or platform understand, some

variety from environments, arbitrage makers what from the and general, volatility in less users exchanges. that across looking of ecosystem opportunities are we see advanced and low the market trading participants across for is In

trade So this to the environment appropriate this switching in is than more comment around platform. it the of them or opportunity environment on and a make overall losing is volatility customers

U.S. line Your Pay from with Bill of the next question comes Tiger Securities.

So X, if I may.

given infrastructure? spreads. or So build on the yourself then plan focusing on just activity, developing on-chain portfolio, not debt is follow emphasis what our on-chain any up our on the retail you And move the second, do max to further to launch product

spreads So overall do the than assets? platform? different spread Bitcoin we lower different our digital charge on trading average Is for

maps. have different answer as let and on by I'll the at in fees, the of talk really road time of I'll by well. then geographies on-chain product, coins future, we historically ticky pricing product this been in evaluate future the but Pricing experiments about tack point may experiments Brian

But opportunities. largely of been by product. all historically, So those are they've

Yes.

asking thanks the for about to So move on-chain.

be making X introduction big the efforts activity on the we're So is get all And going making push more products. our happening obviously, of to our integrate of on next I'm a to of that a chain. more of and with And base, how internally investment really into Coinbase to major there.

doing is areas that we've So to Wallet self-custodwallet. date. few there's our where been a Coinbase

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question X have left queue. We the in

So please. that, let's take

of of question Bank line Dray the Eric America. comes Your final from with

here. your up election? of such legal I crypto follow a there that you Is kind key the second, of kind bit of be into investors date to regulation been Washington, Kind wanted the January Just little parts One, other X should front. aware of? about how the conversations appreciate there. prioritizing have on XX people date, talked a And in then Brian, . heading any

Grewal Paul is well. This

date our just it's me court judgment. day to important out of the and our [indiscernible] forward papers. think your The our to an court motion oral the the with to that in date reason something first with requested that laid judge question. in important even an we that most that Let speak is the was present that XX, We looking to district set we're specifically, January that the were case That's to XXXX SEC. opportunity gratified on the argument date hear focus was part enforcement We more will grant was opportunity. the

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So terms more most XXth in events on to and enforcement case. come the is important the really next to steps critical in there, next focus day but of the

part prioritizing how crypto as I And other think issue an question in of Yes. your D.C. about was the are folks

or the say up can every week X folks government legislative the But the their we've some probably I the East. it's for the engaged Middle there, coming top has new that shutdown, with in of So issues DC here, speaker, crisis over something priority.

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it feels sometimes And generational.

a There's around their don't older staffers but children. So little they're trouble it, often they their -- either, to they head to wrapping they generation. it, haven't e-commerce used their sometimes They right? talk an will have use but

Some Congress in of the younger just it. immediately get folks

these And outcome. right things that's making and X matter it a get about the of of folks so it's we It's inevitable. sure educating just

to right. speaking All look us, you Thank again you joining does to that Well, and forward we call. it. next for all our on

you This for joining. Thank concludes today's conference call.

You disconnect lines. may your now