Coinbase reported a strong Q1 with significant growth in adjusted EBITDA, surpassing the total of the previous year.
Revenue growth was driven by improvements in trading, growth in stablecoins, derivatives, and international expansion.
Institutional business saw growth, partly due to Bitcoin ETFs driving new customer adoption. Coinbase Prime hit all-time highs in trading volume and active clients.
Derivatives and Coinbase International Exchange showed promising growth, with 15 new perpetual future listings in Q1. USDC market cap grew over 30% year-to-date.
Coinbase One subscription product exceeded 400,000 paid subscribers in Q1.
Product and Development
Base, Coinbase’s Layer 2 solution, has significantly reduced transaction fees and times, with developer activity increasing eightfold in Q1. Base processed more transactions in the last 30 days than the entire Ethereum network on Layer 1.
Efforts to drive regulatory clarity include contributing to procrypto organizations and advancing procrypto candidates in elections. A significant legal win was achieved with the dismissal of the SEC’s claim against Coinbase Wallet.
Financial Performance and Outlook
Q1 total revenue grew 72% quarter-over-quarter to $1.6 billion, with net income of $1.2 billion and adjusted EBITDA of $1 billion.
Transaction revenue increased 103% quarter-over-quarter to $1.1 billion, driven by higher crypto asset volatility and prices.
Subscription and services revenue grew 36% quarter-over-quarter to $511 million, with notable growth in blockchain rewards revenue.
Total expenses increased 5% sequentially to $877 million, primarily due to higher stock-based compensation.
Issued a convertible note raising $1.1 billion in net proceeds for opportunistic capital raise.
Early adopted accounting standard 2023-08, leading to $737 million in pretax crypto asset mark-to-market gains.
April transaction revenue was over $300 million, with a Q2 outlook for subscription and services revenue in the range of $525 million to $600 million.
Strategic Focus
No plans to venture into banking or insurance, focusing instead on leveraging crypto rails to update the global financial system.
Continual exploration of innovative products and services, with a focus on international expansion and the on-chain economy.
Question and Answer
Base Smart Wallet Rollout Expectations
Question
What are the expectations for the rollout of smart wallets on Base, particularly regarding their impact on activity, USDC growth, and adoption?
Answer
Smart wallets aim to simplify the onboarding process by using passkeys, potentially leading to increased adoption among a broader audience.
The developer preview on testnet has generated significant interest, suggesting a positive outlook for application development and Base’s growth potential.
Capital Allocation and M&A Strategy
Question
How is the company thinking about its capital needs, considering the growth in various areas and the potential for more aggressive M&A or returning capital to shareholders?
Answer
The company is investing capital in its prime financing business and international expansion, but overall, it maintains a capital-efficient business model with positive unit economics and low capital requirements.
The balance sheet serves as bridge capital for product development and M&A opportunities, with a focus on ventures currently but a continued watch on M&A opportunities.
Investment Levels and Profitability Targets
Question
How is the company thinking about the right level of investment and margin targets in the current cryptocurrency environment, considering the need for future growth and current profitability?
Answer
The company’s focus is on positive adjusted EBITDA, aiming to achieve profitability in all market conditions while learning from past experiences of rapid growth.
Prudent and modest investments are planned to support current performance and product traction, with a focus on variable spend and maintaining a strong balance sheet.
Payment-Related Revenues and Sequencer Fees
Question
Can you provide more details on payment-related revenues and sequencer fees, including what they entail and the key drivers for modeling them?
Answer
Payment-related revenues encompass instant withdrawal fees, debit card fees, commerce fees, and other venture-type products on the platform.
Base has been the largest contributor to growth in this category, and it represents the largest revenue stream within payment-related revenues at this time.
Institutional Client Engagement and Product Adoption
Question
Can you elaborate on the engagement levels of institutional clients, particularly those using three or more products, and provide insights into the types of products seeing strong traction?
Answer
The growth in institutional client engagement is attributed to the expansion of the company’s institutional product suite beyond custody, now including trading, prime brokerage, financing, and staking.
Custody and trading are often used in conjunction, while the adoption of financing and staking varies depending on the client’s needs.
Lightning Network Strategy and Merchant Adoption
Question
What is the company’s strategy for the Lightning Network and payments, and what are the efforts to encourage more merchants to use the Lightning Network?
Answer
The company aims to reduce the cost and confirmation times of all crypto transactions, with the Lightning Network offering significant improvements for Bitcoin transactions.
The company partnered with Lightning Labs to enable Lightning Network on Coinbase, and the goal is to make Layer 2 solutions like Lightning Network a default option for transactions, ultimately reducing fees to under $0.01 and transaction times to under a second.
Institutional Trading Fee Drivers and Competitive Positioning
Question
What has been driving the increase in institutional trading fees and the fee rate, and has the company’s strong market share in ETF custody and its competitive positioning in the U.S. institutional crypto ecosystem provided pricing power in the broader institutional business?
Answer
The increase in institutional trading fees is primarily driven by a mix shift towards higher-growth Coinbase Prime products, which have higher fees compared to the exchange.
The company’s strong market share in ETF custody has contributed to increased engagement on Coinbase Prime, leading to higher fee capture.
User Base Metrics and Contribution to Growth
Question
Can you provide insights into the contribution of new users versus existing users to the strong quarter, particularly in terms of trading activity?
Answer
The company saw growth from existing users, new users, and higher trading volume per user, all contributing to the overall growth.
ETFs and Bitcoin Trading Activity
Question
Given the significant attention on ETFs during the quarter, was there a multiplier effect on Bitcoin trading activity, and how should we think about the relationship between ETFs and underlying Bitcoin spot trading?
Answer
While ETFs garnered attention, the excitement around them contributed to increased customer adoption across the product suite, leading to all-time highs in trading volume and active clients, particularly in the institutional business.
Impact of Recent Regulatory Developments
Question
What is your view on the recent Wells notice received by Uniswap Labs and its potential impact on the U.S. crypto industry? Additionally, how would a classification of Ether as a security by the USDC impact Coinbase’s trading services and staking business?
Answer
Uniswap Labs has publicly and transparently responded to the Wells notice, asserting that the claims have no merit, which reflects a trend of companies publicly addressing disagreements with the SEC in a respectful and constructive manner.
ConsenSys has filed a declaratory judgment action regarding the classification of Ether as a security, highlighting the need for clarity in the market. Coinbase supports both Uniswap Labs and ConsenSys in their views and is confident in the legal processes to provide clarity.
USDC Growth Drivers and Stablecoin Legislation
Question
What are the primary drivers behind the significant growth in USDC market cap, and how is the company thinking about growth in the coming quarters? Additionally, when can we expect stablecoin legislation to be passed in the U.S., and what potential impacts could it have on USDC?
Answer
The growth in USDC market cap is attributed to increased trust and transparency in the stablecoin, leading to broader adoption and ecosystem growth.
The company will continue to offer incentives and collaborate with the global ecosystem to drive further adoption of USDC.
While the timing of stablecoin legislation is uncertain, Congress is actively engaging with the issue, and Coinbase expects legislation to be enacted that will establish standards for transparency, reserves, and other important requirements, ultimately making the U.S. an attractive market.
April Transaction Revenue Outlook and Crypto Cycle Positioning
Question
Does the $300 million outlook for April transaction revenue include other transaction revenue, and can you provide more details on this breakdown? Additionally, what are your thoughts on the current position of the crypto cycle?
Answer
Yes, the $300 million outlook for April transaction revenue includes all transaction revenue categories, but the detailed breakdown is not currently available.
While the company refrains from making predictions about the crypto cycle, it notes that the market cap increased in Q1, volatility remains lower than in 2021, and upcoming developments in Layer 2 solutions could be significant.
State-Issued Stablecoins and the Crypto Ecosystem
Question
Given the potential for state-issued stablecoins under pending legislation, how do you see their role in the market and the implications for Coinbase?
Answer
The company acknowledges the importance of state governments and state-chartered institutions in supporting the crypto ecosystem and stablecoins, and it believes that the dual system serves the interests of consumers and investors.
