coinbase global inc

Corporate Profile:

Coinbase, Inc. was founded in 2012. The Company operates globally and is a leading provider of end-to-end financial infrastructure and technology for the cryptoeconomy. The Company offers retail users the primary financial account for the cryptoeconomy, institutions a state of the art marketplace with a deep pool of liquidity for transacting in crypto assets, and ecosystem partners technology and services that enable them to build crypto-based applications and securely accept crypto assets as payment. In May 2021, the Company became a remote-first company. Accordingly, the Company does not maintain a headquarters.

Shareholder Letter | Webcast

Q1 2023 Guidance

January transaction revenue: $120M
Subscription and Service Revenue: $300 - $325M
Transaction expense (as a % of revenue): mid teens
Sales and Marketing expense: $60 - $70 M
Technology & Development and G&A expenses: $625 - $675M
Restructuring Expense: ~$150M
Employees: 3,650

Summary

Financials

Annual revenue for 2022 fell 59% Y/Y, primarily driven by a 65% decrease in the global crypto market capitalization as the industry faced macroeconomic pressures as well as contagion effects from the collapses of large players such as Terra and FTX. Despite the broader decline, however, the company’s subscription and services revenue was up 53% Y/Y as it looks to diversify its revenue and reduce its dependence on trading volume. Within subscription and services, the interest income grew 1200% Y/Y as a result of higher interest rates in combination with Coinbase’s revenue share agreement with Circle on USDC. Looking to 2023, Coinbase has the potential to generate upwards of $1 billion in revenue from interest income alone which could provide some support if trading volumes deteriorate further.

The company has also shifted to an “all-weather” strategy and will be aiming to generate positive EBITDA in all market conditions rather than just breakeven over each crypto cycle. As a result, Coinbase recently announced a reduction in headcount 20% that will reduce operating expenses in Q1 over 30% sequentially.

Regulation

CEO Brian Armstrong has outlined policy as his top priority for this year as the SEC and other regulators have started to crack down on a number of crypto companies and platforms. The company has reiterated that its staking-as-a-service does not meet Howey test criteria and should not be considered a security, and it is willing to argue that in legal proceedings. Coinbase believes regulation with clear guidelines is a good thing for the crypto industry, and the company stands to benefit as the most compliant player in the space.

On the international side, Coinbase launched services in Australia last quarter following recent license acquisitions, and plans to launch in Brazil in Q1. The company is continuing to deepen its presence in Europe, with positive regulatory development coming from the EU and UK.

Products and Growth

Although Coinbase plans to reduce operating expenses, it is continuing to expand its products and services. Its subscription for retail customers, Coinbase One, is seeing good user adoption, and with Ethereum’s Shanghai upgrade set to complete in the coming months, its staking business should see continued growth. The company is also looking to build out its derivatives business, pending regulatory approval, which could drive significantly higher volumes than the spot market. Additionally, Coinbase announced “Base,” its own Ethereum Layer 2 which it is developing to accelerate innovation and create a better user experience for web3 adoption. Coinbase will be able to integrate with decentralized apps and generate revenue from on-chain activity.

On the institutional side, Coinbase announced it now has onboarded roughly 25% of the top 100 largest hedge funds in the world by reported AUM as the company saw an elevated number of institutional customers onboarding onto Coinbase Prime in Q4. The growth can largely be attributed to Coinbase’s trusted brand and reputation for compliance, in addition to its status as a qualified custodian. The company will look to continue that growth as it launches various partnerships such as BlackRock, which is set to begin in the first half of this year, as well as Google and Signature Bank.