Business Description
Coinbase Global, Inc. (COIN) operates as a leading cryptocurrency platform with a mission to increase economic freedom globally. The company provides a trusted platform for customers to engage with crypto assets through trading, staking, safekeeping, spending, and fast, free global transfers. Coinbase offers critical infrastructure for onchain activities, which include interactions with blockchain-powered technologies such as self-custody wallets, decentralized applications, and open community engagement platforms.
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Transaction Revenue - Generates fees from trading activities by both consumers and institutions, including individual customers and institutional customers such as hedge funds and financial institutions.
- Consumer, net: Transaction fees from individual customers.
- Institutional, net: Transaction fees from institutional customers.
- Other transaction revenue: Includes Base and payment-related revenue.
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Subscription and Services Revenue - Provides revenue from ecosystem products and other services, including stablecoin revenue, blockchain rewards, interest and finance fee income, custodial fee revenue, and other subscription and services revenue.
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Other Revenue - Includes corporate interest and other income.
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Q3 2024 Summary
What went well
- Coinbase has obtained a MiFID license in Europe, which will unlock derivatives trading in over 20 EU markets, expanding its international presence and growth potential.
- Coinbase has onboarded over 100,000 retail advanced traders to its U.S. futures trading platform, demonstrating significant growth in its derivatives offering and potential for increased trading volumes and revenues.
- Coinbase is actively pursuing M&A opportunities to enhance its product offerings and international expansion, leveraging its strong balance sheet and liquidity position, which could accelerate growth once regulatory clarity is achieved in the U.S.
What went wrong
- The company's retail transaction revenue is being impacted by a significant increase in stablecoin pair trading, which generates little-to-no fees, leading to a decline in blended average fee quarter-over-quarter. The stablecoin impact was the most material contributor to the change in rate this quarter.
- Despite launching derivatives platforms internationally and in the U.S., the company faces challenges in scaling this business due to regulatory hurdles and a highly competitive market. They admit there is "still a lot of work to do", and key steps like obtaining the MiFID license in Europe are pending.
- The company is not providing any outlook on 2025 expenses, creating uncertainty about future expense growth relative to revenue growth. Although they mention being disciplined, there is no clear guidance on how they plan to manage expenses while investing in growth opportunities.
Q&A Summary
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Regulation and Election Impact
Q: How will friendlier regulation affect Coinbase's growth?
A: Management believes that clarity and fair treatment from regulators would unlock innovation and growth in the U.S., increasing revenue by attracting more traders and allowing them to list more assets, including crypto securities. Clarity would benefit areas like trading, stablecoins, staking, and partnerships with banks and payment providers. They expect positive effects at both federal and state levels, reducing restrictions and fostering growth. -
Retail Fee Rate Decline
Q: Is fee rate decline due to stablecoin trading mix shift?
A: Yes, the blended average fee rate decreased due to more stablecoin pair trading, which generates little to no fees, and a reduction in non-trading transaction revenue. There were no material changes to the fee rate structure in the consumer app. -
2025 Expense Outlook
Q: How will expenses grow relative to revenue in 2025?
A: Management emphasizes a focus on expense discipline, being prudent, and selectively increasing headcount in growth areas. They plan to flex variable spending to match volumes, taking the same disciplined approach in 2025 as they did in 2024. -
Derivatives Expansion
Q: What steps are planned to scale derivatives offerings?
A: Coinbase obtained a MiFID license in Europe, unlocking derivatives in over 20 EU countries. They are adding more order books and asset types, including commodities like oil and gold. Their U.S. regulated entity onboarded over 100,000 retail advanced traders. Management sees 2025 as a pivotal year to hit their stride in derivatives. -
M&A Opportunities
Q: Will Coinbase build or acquire to fill product gaps?
A: Management is actively looking at M&A opportunities, being selective and disciplined. They've recently closed acquisitions like a MiFID license for EU derivatives and Station Labs for Smart Wallet development. They are open to building, buying, or investing to drive innovation and growth. -
Base Layer 2 Positioning
Q: How will Coinbase leverage its position in Layer 2?
A: Base has been successful as a tool that builders find easy to use. Built on the Optimism stack, Base aims to be a hub for partners. Coinbase focuses on integrating Base deeply into their product suite, creating a flywheel effect for developers. They prefer organic growth over aggressive financial incentives. -
Altcoin Trading Volumes
Q: Are there shifts in altcoin trading volumes?
A: Altcoin trading volume decreased due to lower volatility in Q3 compared to Q2. Focus shifted to Bitcoin and Ethereum following ETF approvals, which drove more volume to these assets. The long tail trading correlates with volatility; less volatility means less trading in altcoins. -
Stablecoin Trading Shift
Q: Is trading shifting from USDC to Tether?
A: The increase in Tether trading reflects more stablecoin pair trading overall. Management does not believe there's a shift away from USDC. USDC was the fastest-growing major stablecoin in Q3, reaching new all-time highs of $36 billion. They are integrating USDC more deeply across their products. -
Retail Take Rate Sustainability
Q: Is stablecoin mix shift structural or temporary?
A: Management does not view the shift to stablecoin trading as structural. Mix varies each quarter; stablecoin trading depends on arbitrage opportunities, which may not exist every quarter. Excluding stablecoin impact, advanced volume was slightly higher in Q3 versus Q2. -
Crypto on Balance Sheet
Q: Will Coinbase hold Bitcoin on its balance sheet?
A: Coinbase already holds crypto on its balance sheet, representing about 25% of net cash after debt. They allocate excess capital to building a crypto portfolio but need significant cash to support their business. They are not aiming to be an investment company but to grow transaction activity in crypto.
Key Metrics
| Revenue by Segment - in Millions of USD | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transaction Revenue | 374.7 | 327.1 | 288.6 | 529.6 | 1,520 | 1,076.7 | 780.9 | 572.5 | ||||||||||
| - Consumer, net | 352.4 | 310.0 | 274.5 | 492.1 | 1,429 | 935.2 | 664.8 | 483.3 | ||||||||||
| - Institutional, net | 22.3 | 17.1 | 14.1 | 36.5 | 90 | 85.4 | 63.6 | 55.3 | ||||||||||
| - Other transaction revenue | - | - | - | - | - | 56.1 | 52.5 | 34.0 | ||||||||||
| Subscription and Services | 361.7 | 335.4 | 334.4 | 375.5 | 1,407 | 510.9 | 599.0 | 556.1 | ||||||||||
| - Stablecoin revenue | - | - | 172.4 | - | 694 | 197.3 | 240.4 | 246.9 | ||||||||||
| - Blockchain rewards | 73.7 | 87.6 | 74.5 | 95.2 | 331 | 150.9 | 185.1 | 154.8 | ||||||||||
| - Interest income | 240.8 | 201.4 | 39.5 | -307.7 | 174 | 66.7 | 69.4 | 64.0 | ||||||||||
| - Custodial fee revenue | 17.0 | 17.0 | 15.8 | 20.2 | 70 | 32.3 | 34.5 | 31.7 | ||||||||||
| - Other subscription | 30.1 | 29.4 | 32.3 | 46.2 | 138 | 63.7 | 69.6 | 58.7 | ||||||||||
| Other Revenue | 36.1 | 45.4 | 51.1 | 49.4 | 182 | 49.9 | 69.7 | 76.6 | ||||||||||
| - Corporate interest | 36.1 | - | - | - | 182 | - | - | - | ||||||||||
| - Crypto asset sales | - | - | - | - | 0.02 | - | - | - | ||||||||||
| Total Revenue | 772.5 | 707.9 | 674.1 | 953.5 | 3,108 | 1,637.6 | 1,449.6 | 1,205.2 | ||||||||||
| Revenue by Geography - in Millions of USD | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
| United States | 686.8 | 637.9 | 606.7332 | 794.19 | 2,725.62 | 1,353.45 | 1,232.6 | 1,037.705 | ||||||||||
| International | - | - | - | - | 382.76 | 284.12 | 217.0 | 167.488 | ||||||||||
| Rest of the World | 85.8 | 70.1 | 67.4148 | 159.45 | 382.76 | - | - | - | ||||||||||
| Total Revenue | 772.5 | 707.9 | 674.148 | 953.83 | 3,108.38 | 1,637.57 | 1,449.6 | 1,205.193 | ||||||||||
| KPIs - Metric (Unit) | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
| Monthly Transacting Users (MTUs) [millions] | 8.4 | 7.3 | 6.7 | 7.0 | - | 8.0 | 8.2 | 7.8 | ||||||||||
| Total Trading Volume [$B] | 145 | 92 | 76 | - | - | 312 | 226 | 185 | ||||||||||
| Safeguarding Customer Crypto Assets [$B] | 124.4 | 124.24 | 114.29 | 192.58 | - | 329.51 | 269.20 | 272.67 | ||||||||||
| Blockchain Rewards Revenue [$M] | 73.75 | 87.6 | 74.5 | - | - | 150.9 | 185.14 | 154.8 |
Executive Team
Questions to Ask Management
- With transaction revenue declining 27% quarter-over-quarter compared to an 18% drop in trading volume, what factors are causing this larger decline in revenue, and how do you plan to address the pressures on transaction revenue moving forward?
- The significant increase in stablecoin pair trading, which generates little to no fees, is impacting your retail fee rates and overall revenue; is this shift towards stablecoin trading structural, and what strategies are you implementing to mitigate its effect on your business model?
- Coinbase's trading volume in altcoins has decreased notably compared to earlier quarters; what are the main reasons for this decline, and how do you plan to regain market share in trading of lesser-traded tokens to diversify your revenue streams?
- Considering the potential for a more favorable regulatory environment post-election, beyond reducing litigation risk, what specific initiatives are you prepared to launch that are currently constrained, and how will regulatory clarity influence your product offerings and growth strategies, especially in areas like staking and listing new tokens?
- Given the authorization of a $1 billion stock repurchase program amidst significant investment needs in technology, infrastructure, and regulatory compliance, can you elaborate on how this capital allocation aligns with your growth strategy and why you are choosing buybacks over reinvesting more heavily in the business or preserving cash due to crypto market volatility?