Coinbase Global, Inc. (COIN) Q1 2022 Earnings Call Transcript | The Motley Fool

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Coinbase Global, Inc. (COIN -12.60%)
Q1 2022 Earnings Call
May 10, 2022, 5:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Gino, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coinbase first quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise.

After the speaker’s presentation, there will be a question-and-answer session. [Operator instructions] I would now like to hand the conference over to your speaker today, Anil Gupta, vice president of investor relations. You may begin.

Anil GuptaVice President, Investor Relations

Good afternoon, and welcome to the Coinbase first quarter 2022 earnings call. Joining me on today’s call are Brian Armstrong, co-founder and CEO; Emilie Choi, president and COO; and Alesia Haas, CFO. I hope you’ve all had the opportunity to read our shareholder letter, which is published on our IR site earlier today. Before we get started, I’d like to remind you that during today’s call, we may make forward-looking statements.

Actual results may vary materially from today’s statements. Information concerning risks, uncertainties, and other factors that could cause these results to differ is included in our SEC filings. Our discussion today will also include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website.

Non-GAAP financial measures should be considered in addition to, but not as a substitute for, GAAP measures. We are once again using the Say Technologies platform to enable our shareholders to post questions. In addition, we’ll take some live questions from our research analysts. With that, I’ll turn it over to Brian and Alesia for some opening comments.

Brian ArmstrongCo-Founder and Chief Executive Officer

All right. Thanks, Anil. So before we dive into our results this quarter, I think it’s worth just addressing the elephant in the room, which is that, of course, the broader markets are down. We’re seeing a down market for growth tech stocks and risk assets.

And of course, Coinbase and crypto is no exception to that. So the good news is that as a crypto company, we’ve lived through many different cycles in crypto, including major drawdowns, which I think make us well suited to operate through these environments. And I have to tell you, kind of going back over the last 10 years in crypto, the up periods, we tend to focus mostly on scaling. There’s so many customers beating a path to our door that we have to have all hands on deck just to keep everything running.

And so the down periods are often sometimes kind of a welcome change from that, in the sense that we get to focus on building the next layer of innovation that will benefit us in the next cycle. We also tend to see the down period as a big opportunity because we’re greedy when others are fearful. We tend to be able to acquire great talent during those periods and others pivot, they get distracted, they get discouraged. And so we tend to do our best work in a down period.

So ironically, I’m actually — I’ve never been more bullish on where we are as a company. And I think it’s really important to separate our performance, how are we executing toward our goals versus how is the broader market doing. And I think in terms of how we’re executing toward our goals, I really — there’s a lot of bright spots. I couldn’t be happier.

For instance, this quarter, we had positive EBITDA despite the market being down, which I think speaks really highly of the resilience of our business. We’re incredibly well-capitalized during this period. So we have over $7 billion on the balance sheet of cash in crypto, which gives us lots of opportunities. As I said, to bring in — continue to bring in the top talent, acquire companies.

54% of our active users now are doing something other than just trading crypto, they’re actually using crypto in a variety of ways. And so our thesis about moving away from just being a trading platform to enabling the entire crypto-economy and being that primary financial account people, it’s really starting to work. The majority of our active users are now doing something other than trading. And even the trading business itself is doing really well.

Despite preferred trading volumes in the macroenvironment being down 44%, and yet we were down about 44% as well, but in the assets that we support, including the core ones like bitcoin and ethereum, we actually gained share. There’s been a lot of talk in the past about fee compression, but we’ve seen in the last few quarters that, that hasn’t been the case. In fact, our take rate is slightly up over the last few quarters. And there’s a lot of new emerging revenue streams like risk-taking and our subscription and services, which grew 169% year over year.

So things — I think we’re executing really well toward our goal. And I just want to read a quote from our S-1 when we went public about a year ago that kind of laid some of this out and we actually talked about it in our earnings call last year, sort of anticipating this downturn. So the quote is that “You can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn’t faze us because we’re always taking a long-term perspective on crypto adoption.

We may earn a profit when revenues are high, we may lose money when revenues are low. But our goal is to roughly operate the company as breakeven, smoothed out over time for the time being. We are looking for long-term investors who believe in our mission and will hold through price cycles.” So of course, this is the early days of this industry, and we are going to continue to invest. As the industry matures over time, we’re going to be a very profitable company and more consistently profitable.

But for now, regardless of whether the market is up or down, we’re going to keep building. And I think the real key is to mentally flip from seeing down markets as being scary to actually being opportunities to pull ahead and that’s exactly what we’re going to be doing in this environment. Alesia, anything you want to add?

Alesia HaasChief Financial Officer

Thanks, Brian. I just want to reiterate that Brian said that the good news is that we have a decade of experience in managing this type of volatility and we expected Q1 to be down from Q4 of last year. And our approach to planning is very deliberate and it considers how we would manage through all types of market conditions. And this is definitely within the range of market positions that we considered in our 2022 plan.

So I want to switch over and talk about our Q2 outlook. So we note in our letter that the softness that we saw toward the tail end of Q1 has continued into April, with crypto market cap and volatility both down compared to Q1. Volatility, in particular, was at its lowest level we’ve observed since mid-2020. Our April MTU averages around 8.9 million users.

Our trading volume is approximately $74 billion, and as a result, we expect Q2 to have both lower transaction volumes and lower MTU than the Q1 levels. In terms of our subscription and services, we anticipate this being similar to modestly lower as the Q1 levels. On the expense side, we anticipate transaction expenses to be in the low 20s, driven primarily by the growth of our blockchain rewards revenue; sales and marketing to be in the mid- to high teens as a percent of net revenue; and tech and dev and G&A will range between $1.1 billion and $1.3 billion. We really recognize that we are navigating through uncertain and volatile markets, and we plan to continue to invest prudently to drive long-term growth.

As such, our outlook for 2022 is largely unchanged. And I want to reiterate that we are aiming to manage to a maximum of $500 million adjusted EBITDA loss, even if we are in a prolonged market downturn. We historically planned our spending under a conservative assumption of a multiyear period of low volatility. And we believe with our balance sheet and resources, we are well capitalized to assist in our operations and its brands that continue to make our focus on building great product experiences, building up our user base, and getting ready for the return of the market.

So with that, Anil, let’s go to questions.

Anil GuptaVice President, Investor Relations

Great. Thank you both. So before we get into Q&A, I wanted to reiterate our Q&A principles. First, we’ll answer the most uploaded questions determined by the number of shares and we might group some questions together that touch on the same themes.

Second, we don’t plan to answer questions related to the potential listing of new assets. And third, we’ll avoid questions we’ve answered in the past if there are no updates. For example, we still don’t plan to issue a dividend. So the first question here, we’re combining two questions.

The top one is about M&A. George R. asked if we see a strategic advantage in acquiring or merging with Robinhood. Noah P.

asked about ventures and how we think about exiting or monetizing the investments made there.

Emilie ChoiPresident and Chief Operating Officer

This is Emilie. Thanks for the question. So, we don’t comment on rumors or speculation on any specific M&A transactions. But I think that the question actually was more about the strategic advantage of owning a traditional securities platform.

And we are a crypto company, crypto is in our DNA. Everything we do is in service of building the crypto economy and increasing economic freedom. So, we…

Read More: Coinbase Global, Inc. (COIN) Q1 2022 Earnings Call Transcript | The Motley Fool

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