Coinbase(COIN) - 2024 Q3 - Quarterly Results

Shareholder Letter Overview Q3 2024 Performance Summary Coinbase achieved its seventh consecutive quarter of positive Adjusted EBITDA, reporting $1.2 billion revenue and $75 million net income Q3 2024 Key Financial Metrics | Metric | Value (USD) | | :--- | :--- | | Total Revenue | $1.2 billion | | Net Income | $75 million | | Adjusted EBITDA | $449 million | - Despite softer market conditions, the company saw growth in average native units for staking, on-platform USDC, and custody, which supports long-term revenue diversification[2] - Significant progress was made in advancing foundational building blocks for user onboarding, particularly through integrating stablecoins and growing the Base network, which became the 1 L2 in transactions and total value locked[7] - The company is actively engaged in policy efforts ahead of the 2024 elections, supporting organizations like Fairshake and StandWithCrypto to advocate for pro-crypto legislation, and is prepared to work with either administration[8] Chapter 1: Q3 2024 Financial Performance Financial Highlights Coinbase achieved its 7th consecutive quarter of positive Adjusted EBITDA at $449 million, with $1.2 billion revenue and $75 million net income Q3 2024 Financial Summary | Metric | Value (USD) | Change (Q/Q) | | :--- | :--- | :--- | | Total Revenue | $1.2 billion | -17% | | Transaction Revenue | $573 million | -27% | | Subscription & Services Revenue | $556 million | -7% | | Net Income | $75 million | N/A | | Adjusted EBITDA | $449 million | N/A | | $USD Resources (End of Q3) | $8.2 billion | +$417 million | - Net income of $75 million included $121 million in pre-tax unrealized losses on the company's crypto asset investment portfolio due to lower crypto prices at the end of Q3 compared to Q2[9][15] - In October 2024, the Board of Directors authorized a share repurchase program for up to $1.0 billion of Class A common stock[9][46] Revenue Analysis Total revenue declined due to softer market conditions, with transaction revenue falling 27% Q/Q to $573 million and subscription revenue decreasing 7% Q/Q to $556 million Transaction Revenue Q3 transaction revenue was $573 million, a 27% decrease Q/Q, driven by declines in both consumer and institutional trading volumes amid lower crypto market volatility Transaction Revenue Breakdown ($M) | Category | Q2'24 | Q3'24 | Change (Q/Q) | | :--- | :--- | :--- | :--- | | Consumer, net | 664.8 | 483.3 | -27% | | Institutional, net | 63.6 | 55.3 | -13% | | Other transaction revenue | 52.5 | 34.0 | -35% | | Total Transaction Revenue | 780.9 | 572.5 | -27% | - Total trading volume was $185 billion, down 18% Q/Q, mirroring the decline in the broader US spot market. This was driven by a 10% decrease in average crypto market capitalization and a 5% decline in crypto asset volatility[20][21] - Other transaction revenue fell 35% Q/Q, primarily due to lower Base sequencer fee revenue, even as the number of transactions on Base increased by 55% Q/Q[25] Subscription and Services Revenue Q3 subscription and services revenue was $556 million, down 7% Q/Q, as lower crypto asset prices offset growth in native units, though stablecoin revenue grew 3% Q/Q Subscription and Services Revenue Breakdown ($M) | Category | Q2'24 | Q3'24 | Change (Q/Q) | | :--- | :--- | :--- | :--- | | Stablecoin revenue | 240.4 | 246.9 | +3% | | Blockchain rewards | 185.1 | 154.8 | -16% | | Interest and finance fee income | 69.4 | 64.0 | -8% | | Custodial fee revenue | 34.5 | 31.7 | -8% | | Total Sub. & Services Revenue | 599.0 | 556.1 | -7% | - Stablecoin revenue growth was driven by a 7% Q/Q increase in average on-platform USDC balances to $6.6 billion and a 5% Q/Q rise in average USDC market capitalization[28] - Blockchain rewards revenue declined 16% Q/Q primarily due to lower average prices for assets like ETH and SOL, despite an increase in average native units staked[30] Expense Analysis Total operating expenses decreased 6% Q/Q to $1.0 billion, driven by lower transaction expenses, while other operating expenses increased due to stock-based compensation and headcount growth Operating Expenses Breakdown ($M) | Category | Q2'24 | Q3'24 | Change (Q/Q) | | :--- | :--- | :--- | :--- | | Transaction expense | 191.5 | 171.8 | -10% | | Technology and development | 364.3 | 377.4 | +4% | | Sales and marketing | 165.3 | 164.8 | ~0% | | General and administrative | 320.1 | 330.4 | +3% | | Total Operating Expenses | 1,106.5 | 1,035.7 | -6% | - The increase in Technology & Development and General & Administrative expenses was primarily due to higher stock-based compensation, which has historically been recognized on a non-linear schedule[36] - The company ended Q3 with 3,672 full-time employees, representing a 5% increase from the previous quarter[34][35] Capital and Liquidity Coinbase ended Q3 with a strong capital position, holding $8.2 billion in USD resources, an increase of $417 million Q/Q, with total available resources of $9.5 billion - Ended Q3 with $8.2 billion in $USD resources, an increase of 5% Q/Q, providing net unencumbered liquid resources[45] - A share repurchase program of up to $1.0 billion was authorized in October 2024, with no expiration date[46] - Total available resources, including $1.3 billion in crypto assets held for investment, totaled $9.5 billion at the end of Q3, up from $9.1 billion at the end of Q2[48] Chapter 2: Business Progress and Strategy Driving Revenue Coinbase expanded revenue streams through new US crypto futures, growing its International Exchange to 89 perpetual contracts, and solidifying its role as primary custodian for BTC and ETH ETFs - Expanded US derivatives offerings with new margin futures beyond BTC and ETH, onboarding over 100,000 users to Coinbase Financial Markets (CFM) to date[51] - Coinbase International Exchange grew its offering to 89 perpetual contracts, covering over 90% of global perpetual futures volumes[51] - Serves as the primary custodian for 17 of the 20 BTC and ETH ETFs, which helped drive native unit growth in custody services[52] - Achieved revenue growth in international markets expanded into in 2022-2023, including Singapore, Canada, Australia, and Brazil[53] Building Crypto Utility The company enhanced crypto utility by driving stablecoin adoption (USDC market cap grew 11% to $36 billion), launching cbBTC, and growing the Base network to become the 1 L2 by transactions and TVL - USDC's market cap grew by $3.5 billion (11%) to $36 billion in Q3, making it the fastest-growing major USD stablecoin in 2024[58] - Introduced Coinbase Wrapped BTC (cbBTC), a fully backed asset that allows users to utilize their Bitcoin in DeFi and other onchain applications on networks like Ethereum and Base[60] - The Base network became the 1 L2 in both transactions and total value locked, with transactions growing 55% Q/Q while median fees remained under $0.01[61] - Launched Basenames to simplify wallet addresses, with 450,000 names registered in the first two months[62] Chapter 3: Regulatory and Legal Update US Elections and Regulatory Landscape Coinbase highlights crypto's growing influence in the 2024 US elections, supporting advocacy for regulatory clarity and remaining optimistic about pro-crypto legislation in 2025 - Crypto has become a significant issue in the 2024 US elections, with both presidential candidates and other politicians adopting more favorable stances[63][64] - Continues to support organizations like Fairshake (a large non-partisan PAC) and StandWithCrypto (a grassroots group with approx. 1.8 million advocates) to push for clear regulations[64] - The company believes the odds for meaningful, pro-crypto regulation are stronger than ever and is prepared to work with either administration in 2025[65] Litigation The ongoing SEC litigation is in the discovery phase, expected to continue through Q2 2025, with Coinbase confident in its legal arguments for regulatory clarity - The SEC litigation's discovery phase is projected to extend through Q2 2025[66] - The company remains confident in its legal arguments and sees the court process as a key way to achieve industry-wide regulatory clarity[66] Chapter 4: Q4 2024 Outlook Financial Guidance For Q4 2024, Coinbase expects Subscription and Services revenue between $505-$580 million, combined T&D and G&A expenses of $690-$730 million, and October transaction revenue of $190 million Q4 2024 Outlook | Metric | Outlook (USD) | | :--- | :--- | | Subscription and Services Revenue | $505 - $580 million | | Technology & Development + General & Administrative Expenses | $690 - $730 million | | Sales and Marketing Expenses | $170 - $220 million | | Transaction Expenses | Mid-teens as a % of net revenue | - Estimated total transaction revenue for October 2024 is approximately $190 million[68] - The Q4 Subscription and Services revenue forecast reflects headwinds from a 10% decline in the average price of Ethereum in October compared to the Q3 average and market expectations of interest rate cuts[69] - The company has updated its stock-based compensation vesting schedule for new awards to achieve linear expense recognition, which is expected to result in a modest Q/Q decline in stock-based compensation expense[71] Financial Statements and Supplemental Information Non-GAAP Financial Measures This section details the company's use of Adjusted EBITDA, a non-GAAP financial measure, which management uses to evaluate operating performance by excluding non-cash or non-recurring items, with a revised definition adopted in Q1 2024 - Adjusted EBITDA is used by management for internal planning and to evaluate ongoing operations, as it excludes items that may not correlate to underlying business performance[76] - Key exclusions from Adjusted EBITDA include stock-based compensation, depreciation & amortization, interest expense, income taxes, and gains/losses on crypto assets held for investment[78][79] - In Q1 2024, the definition of Adjusted EBITDA was revised to adjust for 'other (income) expense, net' in total and to change the treatment of gains/losses on crypto assets following the adoption of ASU 2023-08[83] Condensed Consolidated Financial Statements The report includes unaudited condensed consolidated financial statements for September 30, 2024, covering Balance Sheets, Statements of Operations, and Statements of Cash Flows Condensed Balance Sheet Highlights (As of Sep 30, 2024) | Account | Value (USD Thousands) | | :--- | :--- | | Total Assets | $290,558,608 | | Total Liabilities | $281,830,486 | | Total Stockholders' Equity | $8,728,122 | Condensed Statement of Operations (Three Months Ended Sep 30, 2024) | Account | Value (USD Thousands) | | :--- | :--- | | Total Revenue | $1,205,193 | | Total Operating Expenses | $1,035,680 | | Operating Income | $169,513 | | Net Income | $75,495 | - The Statements of Cash Flows show net cash provided by operating activities was $1.59 billion for the nine months ended September 30, 2024[88]