Coinbase Global, Inc. Q3 FY2024 earnings call

• Driving Revenue: Seventh consecutive quarter of positive adjusted EBITDA and fourth consecutive quarter of positive net income. Diversified revenue away from volatile transaction fees to subscription and services, on pace to surpass $2 billion in subscription and services revenue in 2024. International expansion with 4 new markets, where revenues exceed direct operating costs. Balance sheet at $8.2 billion, Board authorized $1 billion stock buyback.
• Driving Utility: Stablecoins saw growth with USDC market cap up 45% YTD to $36 billion. Smart wallets simplify onboarding to crypto, reducing friction. Layer 2 solution Base is #1 by transactions processed and total value on platform, with 55% QoQ transaction increase. Base innovated with Base names and cbBTC.
• Driving Regulatory Clarity: Procrypto momentum in politics with over 350 politicians adopting pro-crypto stances. Supported advocacy groups like Fairshake and StandWithCrypto.org. Board authorized $1 billion stock buyback to be used opportunistically.

Transaction revenue: Total trading volume was $185 billion, down 18% quarter-over-quarter, leading to total transaction revenue of $573 million, down 27% quarter-over-quarter. Subscription and services revenue was $556 million, down 7% quarter-over-quarter. Stablecoin revenue grew 3%. The number of Coinbase One paid subscribers reached all-time highs in the third quarter. Trading volume decline was driven by lower crypto asset volatility and average asset prices. Consumer stablecoin pair trading volume grew significantly, but nontrading consumer transaction revenue decreased. Institutional spot revenue declined, but prime broker and derivatives business showed relative outperformance.

• Q4 outlook: Subscription and services revenue on pace to exceed $2 billion in 2024. Q4 operating expenses expected to be in specific ranges. Board authorized a $1 billion stock repurchase program with no expiration, to be used opportunistically.

• Market volatility: Affects trading volume and revenue as seen in Q3 with lower crypto asset volatility impacting volume and revenue.
• Regulatory uncertainties: Can impact adoption and business operations, as seen in state-level staking restrictions and need for federal regulatory clarity.

Q: Would Coinbase consider a Bitcoin, Ethereum or other reserve strategy like Micro Strategy?

A: Alesia Haas stated Coinbase invests in crypto, holds Bitcoin, Ethereum, and other crypto assets as long-term investments, with crypto representing about 25% of net cash after debt, and cash kept for business operations.

Q: How are Base, Smart Wallet and cbBTC driving revenue for Coinbase? How is Base performance relative to other L2s or L1s?

A: Brian Armstrong said Base earns via sequencer fees (kept low for growth), Smart Wallet simplifies onboarding to drive adoption, cbBTC drives Base usage and asset on-platform. Base is #1 Layer 2 by transactions processed and total value on platform, with 55% QoQ transaction increase and median fee below $0.01.

Q: Any plans to provide dividends to shareholders in the future?

A: Alesia Haas said no dividends planned, but Board authorized $1 billion stock repurchase program as a way to return capital to shareholders.

Q: Views on Coinbase's share of other crypto assets and shifts?

A: Alesia Haas said trading of other tokens is correlated with volatility; lower volatility in Q3 led to volume shift, and ETF approvals focused attention on Bitcoin and Ethereum.

Q: Driver of retail fee rate?

A: Alesia Haas said blended average fee change due to mix shift to stablecoin pair trade (generating little fees) and less nontrading transaction revenue.

Q: Regulation in election and Coinbase's plans?

A: Paul Grewal said a friendlier regulatory environment would unlock innovation, allow listing of assets, benefit stablecoins and payments, and enable staking resumption, with support for FIT 21 bill to provide clarity.

Q: Stablecoin shift towards Tether?

A: Alesia Haas said no shift, USDC was fastest-growing major stablecoin YTD, integrated deeply across products.

Q: Expense plans for 2025?

A: Alesia Haas said will be disciplined, selectively increase headcount for growth opportunities, and flex variable spend to match volumes.

Q: Capital allocation and Bitcoin on balance sheet?

A: Alesia Haas said Coinbase holds crypto on balance sheet, crypto represents 25% of net cash after debt, but needs cash for business operations.

Q: Gap in product portfolio and M&A plans?

A: Emilie Choi said active on M&A, acquired MiFID license, Station Labs team, and looks to international expansion, Base, and utility areas; Brian Armstrong said build, buy, invest, focusing on accretive value.

Q: Base strategic positioning?

A: Brian Armstrong said Base is successful due to merits, Alesia Haas added Coinbase connects entire product suite, creating a flywheel for developers.

Q: Retail take rate and stablecoin mix?

A: Alesia Haas said mix shifts quarterly, no guarantee of ARPU, but excluding stablecoin, advanced volume mix was slightly higher in Q3.

Q: Derivatives offering expansion?

A: Brian Armstrong said obtained MiFID license for EU derivatives, onboarded over 100,000 retail advanced traders to futures, using referral program and meeting large traders to drive volume.