Coinbase Global, Inc.

Good afternoon. My name is Celine and I will be your conference operator today. At this time, I would like to welcome everyone to the Coinbase third quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Anil Gupta, Vice President, Investor Relations. You may begin your conference.

Thank you. Good afternoon and welcome to the Coinbase Third Quarter 2021 Earnings Call. Joining me on today's call are Brian Armstrong, co-founder and CEO, Emily Choi, President and COO, and Alicia Haas, CFO. I hope you've all had the opportunity to read our shareholder letter, which was published on our investor relations website 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 results to differ from these forward-looking statements is included in our SEC filings and shareholder letter available on our IR website at investor.coinbase.com. Our discussions today will include references to adjusted EBITDA, a non-GAAP financial measure. We believe that certain non-GAAP measures of financial results provide useful information to management and investors regarding trends relating to our financial condition and results of operations. Non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, GAAP measures. You can find additional disclosures regarding adjusted EBITDA, including a reconciliation to net income, the comparable GAAP measure, in our shareholder letter and current report on Form 8K, which are posted on our IR website. I want to note that we are once again using the SAFE Technologies platform to enable our shareholders to post questions to our management team. In addition, we will take some live questions from our research analysts. And with that, I'll turn it over to Brian and Alicia for some introductory comments. All right. Thanks, Anil. Thanks, everybody, for joining us as well. so we've had another solid quarter and this is amidst the volatility happening out there in the crypto market so we never we never know exactly what's going to be happening this quarter in crypto but we are seeing really strong and accelerating pace of crypto adoption globally so in the letter we actually shared some insights on the pace of this adoption and how it mirrors that of the internet 25 to 30 years ago And we looked at some third-party research, which indicates that crypto users have doubled in the first half of this year, now over 200 million people, and that growth is accelerating. So what have we been focused on at Coinbase? Well, there's four main areas. The first is about products. We're a product-led company, and we focus a lot on how we can improve the customer experience to get a billion people accessing the crypto economy through our products every day. So how are we doing that? Well, we're investing in our core apps, the main retail app. We're also investing in our prime brokerage app for institutions. We're building Coinbase Cloud, which is our AWS-like developer platform for any business out there that wants to build into the crypto economy. And we're even investing in new initiatives like our NFT marketplace and our direct deposit offerings. The second area is around customer service. So you saw that we announced 24-7 phone customer support, which we're going to be rolling out next quarter. We're also investing in site reliability. In the midst of all this growth, we're very focused on maintaining adequate uptime for our apps and websites in this unprecedented growth period. And then lastly, we're focused on our policy and government relations efforts and regulation. And so this is continuing the tradition that Coinbase has had since the beginning of seeking out regulators, being the most trusted, getting licenses, and actually being an educational resource to help educate folks around the world about how this industry can be something very positive for the world. So I know there's lots of questions to get to, but let me stop there and I'm going to turn it over to Alicia next to share a summary of our financial performance.

Thanks, Brian. As Brian shared, Q3 was a strong order for Coinbase. We've provided a lot of disclosure in our letter, but I thought I would share a few perspectives. It starts with volatility. The story of our third quarter really centers on lower volatility that we saw early in the quarter. Our monthly transacting users and trading volumes, and therefore transaction fee revenue, all correlate with volatility. So it's a very important driver of financials. Trading volume across the entire crypto spot market declined quarter over quarter in Q3. For Coinbase, our institutional volumes outperformed this broader market, and our retail volumes performed in line with the industry. Next, I want to share a bit of color on our retail transaction fees, because I know you all watch this closely. As you'll see from our disclosures, the blended average fee rates were lower in Q3 versus Q2 for our retail business. We want to be clear. There was no change to our retail transaction fee rates in the quarter. The decline that you see is the result of math. It is a result of the fact that in low volatility periods, we see our low dollar volume traders become less active. We've seen this trend actually reverse in October as customers have been very active on Coinbase given the change in crypto prices and volatility that we've seen in October. And our blended average retail fees were higher in October. So I want to share with you again, this is just an outcome of activity on our platform and that there's no underlying change to the fee rate. Three other important trends I want to call out. Our focus on asset addition is paying off. We told you before we want to be the Amazon of assets, and today we see 59% of our trading volume in Q3 coming from other crypto assets. We don't know precisely which assets customers are going to adopt, so our strategy of wanting to support all legal assets will give our customers the broadest and safest choices to do so. Second, our customers are deepening their engagement with our product suite. 28% of our retail MTUs that invested also engaged with a second product on Coinbase in the quarter. And 49%, nearly 50% of our MTs are engaging with non-investing products overall. We see this as a great indication that we're moving to the utility phase of crypto. Third, our subscription and services revenue was strong at $145 million. This is up 41% compared to Q2. We are pleased to see this growth despite the impact of volatility on the transaction revenue. And again, this is just an encouraging sign that crypto is increasingly moving to utility, particularly with use cases around yield and rewards. I want to turn to our outlook. In our shareholder letter, we noted that Key4 is off to a strong start. Volatility and crypto prices both increased in October, which has resulted in October monthly transacting users of 11.7 and October trading volume of 186 billion. Additionally, as I mentioned before, we've seen an increase in those retail fee rates in the month of October. As a result of this strength, we've increased our MTU scenarios for full year 2021. Our low is now 8 million MTUs, which is the average over the course of 2021, and our high is 8.5 million, as outlined in our letter. We also share that we anticipate our 2021 annual average debt transaction revenue per month will be in the high $50. On the expense side, our updated outlook reflects our strengthening view of Q4, including transaction expenses in the mid-teens as a percent of our revenue. Sales and marketing will be higher compared to Q3 as we ramp up our brand investments. And our tech and dev and G&A spend should come in in the neighborhood of $1.4 billion combined. It's important to note that that excludes, i.e., does not include stock-based compensation. With that, I'll turn it back to Anil to get started with Q&A.