Coinbase Global, Inc.

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coinbase third quarter 2024 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. And if you would like to ask a question during this time, simply press star one on your telephone keypad. Anil Gupta, Vice President, Investor Relations. You may begin your conference.

Good afternoon, and welcome to the Coinbase Third Quarter 2024 Earnings Call. Joining me on today's call are Brian Armstrong, Co-Founder and CEO, Emily Choi, President and COO, Alicia Haas, CFO, and Paul Grewal, Chief Legal Officer. 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, which may vary materially from actual results. 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 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, not as a substitute for, GAAP measures. We are once again using the Say Technologies platform to enable our shareholders to ask questions. In addition, we'll take live questions from our research analysts. And with that, I'll turn it over to Brian for opening comments.

Thanks, Anil. I'm excited to share our progress on our 2024 priorities. Just a reminder, our priorities for 2024 were number one, driving revenue. Number two, driving utility, which is really going beyond just trading as a use case for crypto and how do we make it a part of people's ordinary lives. then number three driving regulatory clarity so we'll touch on each of these in turn so starting with driving revenue we had some softer market conditions in q3 but overall it was a really solid quarter for coinbase it was our seventh consecutive quarter of positive adjusted evita it was our fourth consecutive quarter of positive net income and as you've heard from us many times we've made a big effort to diversify our revenue over the years away from transaction fee revenue, which is more volatile. It's not as predictable. It's more market dependent. We've shifted more of that to subscription and services revenue over time, and we've made incredible progress on that this year. So we're now on pace to surpass 2 billion in subscription and services revenue in 2024. That's up from just 1.4 billion in 2023. This has really given us the resources to invest in some of those next steps around utility and regulatory clarity. Just a quick update on some of our international expansion efforts, because this also helps drive our revenue. We did invest in four new markets and over the last few years, the last two years that have now, the revenue has exceeded their direct operating costs. And so that's kind of showing that we have a playbook there that's repeatable and we can continue to do that in more countries. so this has resulted in a stronger balance sheet which is now at 8.2 billion dollars and that's given us a lot of financial flexibility we can do lots of different things with that but our board has also authorized a 1 billion dollar stock buyback which is something we can use at our discretion as well okay so moving on to the second priority was around driving utility this is really important because crypto started off as an asset class that people wanted to trade but We actually want to increase economic freedom in the world. We want to update the financial system. We want to make it a part of people's daily lives. And to benefit from it, you know, not everybody in the world is someone with disposable income to actually do trading every day. They need to be doing things that are more frequent for regular people. And so some of these building blocks are now really just starting to come together this quarter and the last few quarters that are going to allow us to bring on hopefully a billion or more people into the crypto space. And I'll just touch on a few of those quickly. One of them is stable coins. These are useful for people in high inflation markets. They're useful for people who want to make money move faster around the world and do fast, cheap payments, remittances. Smart wallets is the second one. This is a technology that we really pioneered, and it's made onboarding to crypto-based apps much lower friction and reduced the fees, and it has a bunch of benefits, which I'll talk about. And then the last one is a Layer 2 solution called BASE. This is allowing blockchains to really scale, and it's enabling every transaction to happen under one second, one cent, anywhere in the world. And I think crypto is probably the only rail payment rail in the world that can claim that. It's both fast, cheap, and global. So let's touch on each of these and just think about how they're coming together to enable new use cases. And one of those use cases is payments. And payments is having a bit of a moment right now in crypto. I'd say it's a really important trend that's underappreciated. So last year, stablecoin payments or transactions, we saw about $10 trillion of volume. And we're actually we've already to X that in 2024 so it's surpassed 20 trillion already. Um, it'll be larger of course, by, by the end of this year. And so one of the things that's really making that possible is now having a trusted stable coin, uh, with USDC. It's one of those important building blocks. We've made a really big effort at Coinbase to integrate stable coins into all of our different products. And that's actually driven a USDC growth in a major way. Uh, the market cap of USDC is up 45% year to date to 36 billion in Q3. That's up from 25 billion at the start of this year. And I believe it's actually now the fastest growing US dollar backed stable coin, at least major one out there. We also launched support for EURC, which is a Euro backed stable coin on base. We were able to help double its market cap in Q3, and that's now become the largest Euro backed stable coin. So this is no longer just a dollar phenomenon. We're gonna see stable coins in many different fiat currencies. So that's an important building block with stable coins. The second one I mentioned was smart wallets. And last quarter, we actually launched support for smart wallets. This really revolutionized the user interface that people go through, especially with self-custodial wallets to onboard to crypto. So they no longer have to remember this recovery phrase or write it down. People were always worried about losing these recovery phrases. And they no longer need to do that. They can use biometrics or something called pass keys to create the wallet in just a second or two. There's nothing to remember or write down or to lose or forget. And it also helps eliminate some of the network fees. We came up with a clever solution around that. Because there was often a sort of chicken egg situation where people didn't have the crypto to pay the network fee and now they don't have to have that. So it's still early days, but we're seeing really positive signals there. Not all of our products have integrated this, but in some of the ones where we have, we've seen the time to first transaction, which is a metric we track, go down to about eight minutes instead of it being 2.5 hours using some of the more traditional wallets. So smart wallets have made the onboarding simpler. And then lastly, these layer two solutions have been a huge contributor and base, which is our layer two solution that we've helped pioneer and is now decentralizing, it's become the number one layer two solution out there. It's been incredibly successful, whether you measure that by the transaction count processed or the total value that's on the platform, it's now the number one layer two solution out there. And so I think this is gonna become the default way that people pay with Layer 2, OnBase, USDC. It's less than one cent, one second anywhere in the world. It went from $10 trillion of volume last year to $20 trillion of volume this year. It's really starting to happen in front of our eyes. And, you know, Base has continued to really innovate quickly. So, for instance, they added something called Base Names, which is an on-chain identity product. This just makes crypto easier to use if you can send to a human readable name instead of these wallet addresses, which look a little more complex. They also launched something called CBBTC or Coinbase Bitcoin BTC. We launched that on Ethereum and Base. And this is essentially a Coinbase wrapped version of Bitcoin. It allows people to use all of the value that they've accumulated in Bitcoin, but use it in DeFi applications such as for borrowing and lending. So the Base team has just been innovating at a really important pace here. So all of these building blocks are coming together where you can really start to see consumer utility happening in crypto. And just to give you an analogy of how I think about it, you know, sort of really how the internet started, right? If you go back to the year 2000, only about half of 1% of global GDP was happening through e-commerce. And today it's about 20% of global GDP running through e-commerce. And so I think crypto is going to follow a similar trend. Um, we've, we've done our own internal estimates of this and we've, it's, it's a tough thing to estimate, but by our, our best guess is about half of 1% of global GDP is occurring on crypto rails. we really want to get that to be 20% of global GDP running on crypto rails. We think that they're faster, they're cheaper, they're more global, they're more fair, they're more free. Payments are going to flow to the path of least resistance, kind of like water. And these are the best payment rails in the world. Many other benefits, people want this globally as a refuge from inflation, economic freedom, good financial infrastructure. It creates prosperity around the world. And so I think we now have that foundation in place to see global GDP run more and more on crypto rails over the coming years. Okay, so that's driving utility. Let's talk about driving regulatory clarity as our final pillar here. I'm really proud of where we've gotten to as an industry, as a community over the last few years. I mean, just a few years ago, it felt like crypto was under siege. There was a small handful of people that were very anti-crypto, really attacking the industry. And today, it really couldn't be a different story. Both presidential candidates are now courting the crypto voter in their statements. Over 350 politicians running for federal office have now adopted pro-crypto stances. If you look at standardcrypto.org's rating system, they have either an A or a B grade. And so really, no matter what happens in this election, it's going to be the most pro-crypto Congress ever. We know that already. And then we had a big success this year with the House and the United States passing pro-crypto legislation with strong bipartisan support. That was the FIT 21 bill. And so that's, of course, now being discussed in the Senate. I just feel like crypto has shown up in a really massive way on the policy side and it's a very powerful voice and constituency. You know, we've tried to really do our part here and supporting our customers. And we've been a major supporter, for instance, to Fairshake. They were one of the largest nonpartisan PACs in this election, maybe the largest one, I'm not sure. And we also supported StandWithCrypto.org. They're this grassroots advocacy group that I mentioned. They're now up to 1.8 million crypto advocates who've raised their hand. It's an incredible number. These are folks who raised their hand and said they want to elect pro-crypto candidates in this election. um so this is this is a huge number of voters and you know by the way all of you i think can help if you want to see this this industry get built in america i'd encourage you to go check out stanwithcrypto.org and look up your state see see the scores of the different candidates running where you live and so we'll we'll see how this election turns out in five days or so but you know i think regardless of what's happening, what happens at this election, it's actually already been a huge positive success. And one thing I want to make a really big point of talking about today is that we're not going to slow down post-election, right? In five, six days, we're going to get our results. But we know that this is going to be an ongoing focus and we need to make sure we get pro crypto legislation passed in this country to really unleash the floodgates of new sources of capital and innovation. And we can't have this environment of regulation by enforcement that's kind of killing all these startups that are trying to innovate in the space. And so I think it's going to be a huge tailwind for this industry if we can get regulatory clarity. So You know, we're announcing today that we're going to be committing another $25 million to fair shake ahead of this election, regardless of the results. And that's going to be used not in this current election, but actually just to continue momentum going into the 2026 midterms. In addition to that, we're going to continue to support StandWithCrypto.org after this election. They have a stretch goal of getting to 4 million advocates by 2026 midterms. And so we're going to support them in that result. So these have been two of our highest ROI investments to date on the policy side. I do think it's one of the biggest levers that we can pull to try to help this industry thrive, support our customers. When I go meet with big financial institutions or just regular people who are using crypto, um the number number one thing i hear and i ask them you know why aren't you using it more and they tell me it's regulatory clarity especially on the institutional side i think that's that's going to be a massive source of inflow of capital if we can get that that checkbox for many of them so yeah that's our summary on driving driving revenue utility and regulatory clarity just to close here i you know i think we're really well positioned um we've got positive adjusted EBITDA in all macro environments for seven consecutive quarters now. I think the business is in a really healthy place from a cost point of view, managing expenses, and that's given us the resources to go fund driving utility and this regulatory clarity, which can really be the next chapter of crypto to grow this hopefully to a billion users or more over time. So I'll end there and pass it over to Alicia.