Coinbase Global, Inc.

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. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, press star 0. I would now like to hand the conference over to your speaker today, Anil Gupta, Vice President of Investor Relations. You may begin.

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, Emily Choi, President and CEO, and Alicia Haas, CFO. I hope you've all had the opportunity to read our shareholder letter, which was published on our IR side 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 SAIT 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 Alicia for some opening comments. 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 down periods. So ironically, 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 towards our goals, versus how is the broader market doing. And I think in terms of how we're executing towards our goals, 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 and crypto, which gives us lots of opportunities, as I said, to 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, you know, even the trading business itself is going really well. Despite crypto trading volumes in the macro environment being down 44%, and, you know, 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 three quarters that that hasn't been the case. In fact, our take rate is slightly up over the last three quarters. And there's a lot of new emerging revenue streams like with staking and our subscription and services, which grew 169% year over year. So, you know, I think we're executing really well towards our goal. And I just want to read a quote from our F1 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 at break-even, 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. Alicia, anything you want to add?

Thanks, Brian. I just want to reiterate that Brian said that the good news is that we have a decade of experience in managing through 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 conditions that we considered in our 2022 plans. So let's switch over and talk about our Q2 outlook. So we note in our letter that the softness that we saw towards 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 volume 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 data and G&A will range between $1.1 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 $500 million adjusted EBITDA loss, even if we are in a prolonged market downturn. We've historically planned our spending under a conservative assumption of a multi-year period of low volatility. And we believe with our balanced unit resources, we are well capitalized to sustain our operations. And as Brian said, 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, Emil, let's go to questions.