Q1 2022 Coinbase Global Inc Earnings Call
If you require any produce eastern's press star zero.
I would now like to hand, the conference that Richard Speaker today annual Gupta, Vice President of Investor Relations you may begin.
Good afternoon, and welcome to the <unk> first quarter 2022 earnings call. Joining me on today's call are Brian Armstrong co founder and CEO .
<unk>, Choi president and CEO and Alicia.
So.
I hope you've all had the opportunity to read our shareholder letter, which was published on our IR site 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 same technology platform.
To enable our shareholders to pose questions. In addition will take some live questions from our research analysts with that I'll turn it over to Brian and Alicia for some opening comments.
Alright, Thanks, Danielle so before we dive into our results. This quarter I think it's worth just addressing the elephant in the room, which is of course, the broader markets are down we're seeing down.
Down market for growth Tech stocks in rich gas rich risk assets and of course, Coinbase and correct. There is no exception to that.
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 this environment.
And I have to tell you kind of going back over the last 10 years.
Do the out 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 periods as a big opportunity because we're greedy when others are fearful we tend to.
To be able to acquire great talent during those periods end.
Others, typically get distracted they get discouraged and so we tend to do our best work in down periods.
So ironically I'm actually 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 are executing executing towards our goals.
Really there's a lot of bright spots I couldnt 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 are 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 bring and continue to bring in the top talent acquired companies.
54% of our active users now are doing something other than just trading crypto theyre actually using crypto and 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 count people, it's really starting to work. The majority of our active users are now doing something other than trading.
And even the training business itself is doing really well.
Despite crypto trading volumes in the macro environment being down 44%.
We were down about 44% as well, but the assets that we support including the core ones like Bitcoin and ethereum, we actually gained share.
Theres been a lot of talk in the past about.
About fee compression, but we've seen in the last few quarters that that hasnt been the case in fact, our take rate is slightly up over the last few quarters.
And Theres a lot of the new emerging.
Revenue streams like was taking in our subscription and services, which grew 169% year over year.
So.
Two things I think we're executing really well towards our goal and I just wanted to read a quote from our S. One when we went public about a year ago.
<unk> laid some of this out and we actually talked about it in our earnings call last year anticipating this downturn.
The Dakota does it you can expect volatility 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 <unk> adoption.
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 breakeven 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 the real key is to mentally flip from being down markets and being scary to actually be our 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 .
Thanks, Brian and the good news is that we had a decade of exploring to launch into that type of volatility.
Second Q1 pay down principle filed last year and our approach to planning has been deliberate and considered Hollywood managed to all types of market conditions and this has definitely been the range at.
Market conditions that we considered in our 2020 plans.
So last October and talk about our Q2 outlook.
We note in our letter the Assortments that we've talked about the pairing of Q1 has continued into April with crypto market cap into arthritis, both down compared to Q.
Volatility in particular I was at the lowest levels in mid 2020.
Our April average is about $8 9 million.
Our trading volume was approximately 74 million and as a result, we expect Q2 to have both lower transaction volume and lower in Q1 of.
In terms of our subscription and services, we anticipate this being similar to modestly lower.
<unk> one levels.
On the expense side.
Transaction expenses to be in the low twenties, driven primarily by the growth of our blocks and reward 70.
Sales and marketing to be in the mid to high teens as a percent of net revenue and tech and Dev and gaming will range between one one and $1 $2 billion.
We really recognize that we are navigating through uncertain volatile markets and we plan to continue to invest prudently to drive long term growth.
As such our outlook for 2022 of LIFO change and I want to reiterate that we are aiming to manage to a maximum of $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 multiyear period of low volatility and we believe with our balance sheet I mean, Fortunately, a well capitalized assisting our operations and as Brian that continue to make our focus on building great product experience.
Building up our user base and getting ready for the return of the market.
So with that now let's go to questions.
Alright. Thank you both so before we get into Q&A I wanted to read it or whether it's our Q&A principles.
First of all answer the most up further questions determined by the number of shares and we might get some questions together that touch on the same themes.
We don't plan to answer questions related to the potential listing of new assets and third we will avoid questions. We've asked for in the past that there are no updates for example, we still don't plan to issue a dividend.
So the first question here, we're combining three questions to the top line is about M&A.
George are asked if we see a strategic advantage in acquiring or merging with robinhood.
<unk> asked about ventures, and how we think about exiting or monetizing the investments made there.
This is Emily thanks for the question. So we don't comment on rumors or speculation on any specific M&A transaction, but I think that the question actually was more about the strategic advantage of owning a traditional securities platform.
And we are a crypto company <unk> is in our DNA everything we do is in service of building the crypto economy, and increasing economic freedom. So we don't plan to offer traditional securities unless somehow help us massively accelerated peptide option.
I also think there's a great opportunity to talk about our invest and apply our strategy more broadly.
On the venture side, we are one of the most active corporate investors in the world and we've made more than 300 investments to date, we take minority positions in terms of companies that we think will have great potential including open fee alchemy Dapper lab tax that unit's profit compound and we're very proud to be in these companies and support that growth.
The Golar ventures is to grow the overall cut the economy and to support the ecosystem and get differentiated insights. We look for the best teams and products to invest 10, and we spent a lot of time working with protocols web three infrastructure at <unk> and Ftes in the matter of ours. We also care about ROI and we're happy with the returns that we have.
Generated since 2018.
For the most part we don't have any intention of selling or monetizing that stake because we're just long in the whole sector to me it would be like Facebook or Google, having bad on a large portfolio of the most promising tech companies back in the day and then just having held them for long periods.
That takes me to the second pillar, which is quite fast and we are very focused on acquiring great companies that can supplement our accelerate our plan.
Another secondary goal.
Adventurers is M&A pipeline and our partnerships. So an example of this is biasing trails, we invested early through <unk> ventures.
Turned out to be a great company and so we then acquired them at the foundation of <unk> cloud and.
And we've also acquired companies like <unk>, which helped us become the number one in crypto custodian in the space as well as the foundation for our prime offering.
The final benefit of all of this is that we have incredible entrepreneurial teams in place who are running important parts of the business.
Sorry, I was on mute.
The second question is about our NFC marketplace have we've been pleased with the activity. Thus far on the platform any metrics, we can share for investors to get a sense of the progress.
Yes happy to share an update so in general I've been really pleased with the results. So far we've gotten really positive reaction from customers.
There are a lot of inventory listed on the site for sale.
Customers are really engaging with our social first approached and if to use of the <unk>.
I think opens up some really interesting strategic opportunities in the future.
So in terms of adoption, we've really been slowly rolling out invites from our waitlist for a while and then we just recently opened up to the public data.
We haven't actually really connected to the NFC product into our main distribution channel, yet, though which is through our main retail app.
Quinn this wallet, so we'll be looking to do that.
Your future and then we don't really share metrics about any of our venture best internally any of our new initiatives, but I can just say that there is a lot to build and the opportunity to NFC space is.
Is enormous so.
There is a lot of features we're planning to add the ability for people to do and a few drops men's their own NFC token, there's token gated communities, we want to support.
And even the option to buy a piece just directly with your credit card or any funds that you're not currently having to remain on this account, which isn't hospitals data and the App. We also want to support more changed over time people are minting entities across more and more chains and we wanted to continue to decentralize the NFL experience and really embraced the anqing native.
Protocols and make sure and if you don't become a centralized experience so.
I've been really happy with how it's gone.
This is the beginning of a long journey.
We've only drilled a small fraction of what we're going to do in the NFC space and I think it's probably worth mentioning also that just reminding everyone. I think NFC is it's not just hard worker collectibles digital collectibles I think fees are going to play a big role in gaming and music in the meta versus decentralized identity and even in real world items.
Blake tickets to events proof of attendance and maybe even digitizing.
Estate and the real world So.
A lot to do in the MSP space.
<unk> is really starting to keep investing in it.
Yes.
Our next question comes from Tom <unk>, who asks how can we do a better job clarifying claim basis vision to investors and the general public.
Observes the merger narratives as a competition is growing being trading fees are therefore are shrinking and see it quickly. It has no other meaningful revenue how would you respond to that and then <unk>.
Latest Patrick and also ask what's our biggest competitive moat versus competitors.
Yes. So this is a big question, let me, let me start off and then I'll turn it over to Alicia So you're assuming out what is the vision for choline days well.
The different readmission, but our mission is to increase economic freedom in the world and I really believe that Chris.
Crypto currency is this unique technology thats been invented and along with the cell phone. It can be used to create good financial infrastructure for people all over the world and to enable this new more internet native global fair and three economies of the world. So that's the vision.
What we want to accomplish and of course in that world is going to be the primary financial account. The primary way that people access the crypto economy, it's going to help them not just by himself brookdale as a brokerage, but also to store crypto and then use it and all of these novel ways as I mentioned earlier, we're already seeing that trend play out 54% of our active users are now.
Now doing something other than trading with crypto and if you're wondering what are they doing with.
It's all the things you would use money for and more of their earning money with crypto, they're spending it with merchants using credit cards the earnings yield on their assets as borrowing and lending opportunities and increasingly there is a huge ecosystem of third party applications or adapt decentralized apps.
Probably over 1000 of them now that people are creating all kinds of new stuff with games and social and.
And art music and all kinds of things.
So in my mind this is a little bit like the early days of the Internet.
Where you saw the birth of e-commerce in the late <unk> early two thousands and now fast forward 20 years E. Commerce, I think it's something like 15% of global GDP and I think if you fast forward 20 years from here. The crypto economy is going to represent probably a large portion of that 50, 15% of those of global GDP.
So <unk> can help create that vision and make it a reality in the world.
So in terms of our competitive moat, which the question also asked about.
There is a couple of main things that I think about.
Trust and ease of use are really big months for us.
Trust is it comes down to a compliance a concerted effort to go work with <unk>.
Policymakers around the world It comes down to cyber security and restoring where crypto it securely for our customers and so whenever people are coming into a new industry.
They generally want to go with the one that has been around the longest.
It's the trusted by the most people and has the most number of users current basis really the only crypto company that's public in this environment.
And we're storing we're starting to do largely on a crypto that I think that's a defensible moat because basically when people trust us they store copter with US and then when historically do with us.
<unk> used crane days to go.
Use their crypto and a variety of ways and so it has it has a nice kind of.
Defensible position there the other piece is ease of use.
So crypto is still very complicated and what we really want to do is help bring it to a 1 billion people and then eventually the majority of people in the world and so most people don't understand exactly how private keywords or understand how electricity works, either but they're owed intranet underneath but they are able to benefit from it because people have built applications that make it.
Accessible to anyone and so thats the other big piece that were doing trust the need to use I guess the last thing I'll say is that.
<unk> is really a multi product company as a platform in a way. So many of our products are well integrated there'll be even better integrated over time.
If you have crypto that you buy with US and you start with US I mean, it's easy to use things like <unk> and <unk>.
So our suite of products I think makes us a little bit unique out there in the sense that.
Youll see some of those will be in the later stages maturing revenue wise other than other ones will just be starting.
It makes us a pretty unique company from that point of view as well.
Recently triggered you maybe talking about some of these narratives that we mentioned around competition and trading fees.
Other types of revenue.
Brian I just want to underscore what you just said, which is that we are a pipeline and that we're building the products and services around each of our databases are retail users are institutions and developers and so while we do have increasing competition between welcome move us quicker to be adopted by every business out there every human out there, but the competition.
We see it largely frequent questions and no one is competing against the breadth of our platform offerings. So for example, if I look at our institutions are quickly as prime offering provides an integrated suite of products with custody trading and we have the ability to route orders through our broker prime broker to more than 10 different liquidity and that losing youre always guaranteed.
Find the best price when Youre trading on the claim based platform vis vis your banker to compete with other string just a customer standalone solution and other exchanges lingo and trade directly on that exchange, but if you want the ability to see price across all 11 exchanges asbestos comprise smart order routers and without the trade <unk>.
Through an integrated then settlement back to a club stripe type decision. So this is an example of how we compete and breadth of our product offerings to really serve our customers in differentiated ways.
Similarly on retail with.
Our retail app with a very simple experience for buying a crypto and there are many people offer that you can look at the exposure on a number of them have opened.
By what we've seen with our users want to be able to use the clip that would really benefit by that utilities are talking about so I'm wondering as we're looking to provide all of those transaction experiences on a single platform in the East Bay and now we have 54% of our users are Neil so they can take their assets.
Can spend their assets on a credit card with Lincoln alone against those assets and increasingly the RC is there then transferring assets into their wallet and using that as the design, we're bringing that all over time into one integrated platform and we believe that will really differentiate us.
The claim.
Competitors.
This speaks to our brand promise and easy to use and it speaks to us growing in wireless access and diversification.
And then bring that back to trading days.
Just factually Rps actually have not declined in fact, our blended fee rate is up over the last two quarters.
Our transaction revenues are down on an absolute basis in Q1 and that reflects about a weakness in the markets. It is not surprising given the volatility and price backup as we previously talked about but we're not seeing competition on fees. We are seeing that we want to experiment with different price structures, we've announced a subscription product <unk> and we're excited about the opportunity to continue the better.
Users can find the price model was attained ages more and more products on our platform.
And lastly, as to why they're focused on revenue diversification, we are diversifying our revenues, while continuing to invest in new products and services to drive differentiated revenue streams are subscription and services revenue accounted for $155 million of revenues in Q1 or roughly 13% of our total net revenue, which increased 169 person.
Year over year.
As I mentioned 54 of those users are engaged with additional products beyond and that being the largest driver Inc, where we're continuing to add more assets. When we just added <unk> in income.
Lastly, you touched on it but we're excited by the launch of the NFC Beta was spoken to general release, and we think this will be a driver of future growth. So to conclude we are a platform for adding more assets and products to enable new ways for users to engage and we will keep adding customers.
And as Brian said.
Our next question is from several shareholders, who would like to know what we see as the biggest opportunities to drive shareholder value over the next years.
Sure. So we often get the question from investors, how do we think about resource allocation and our expense base and how we're going to drive revenue growth over the long term from that so let me take a moment to talk about our investment pillars.
We invest in our core pillars mentioned before crypto as an investment crypto as a new financial system and crypto as a new type of platform.
And we map roughly 70% of our budget at any given time to core activities around those first two pillars, such as trading custody and international expansion.
This would also include things like lifting more assets and expanding payment routes.
Then we allocate another 20% to strategic products, such as wallet and speaking for example, we made <unk> available for retail users in Q1, and we would expect to see a revenue impact in coming quarters from that.
Wallach, which we also map to strategic is the gateway to entering web III and that should drive long term growth of users engagement and eventually monetization.
And then finally, we allocate roughly 10% of our budget to longer term that such as the NFC marketplace.
We listen to our customers in the market to understand which products and features and are less important and then we make bets on those products. So that example of vessels custody, which we knew was going to be an important institutional product. We began building. This several years ago and then we made a bet on acquiring that back during the last scrip that winter. This now has helped us become the largest <unk>.
Related to protect custodian.
And I think this is what leads to an important point, which is that <unk> only been public for a little over a year. So for many of you. Following the story this might be the first rail crypto market slowdown that you've seen.
I personally signed my offer letter for clean base in December 2017, which was kind of peak up the last cycle and promptly the market started falling.
It was an incredible lesson for me in terms of thinking about long term crept up cycles, and Bryan and others helped me to think through how you power through and not overreact.
As a rare attribute and being able to weather the storm and I think Thats why this company has been around for more than a decade at this point.
What we do as we focus on the things, we can control, which is strategy and execution. So we felt great products, we onboard more users and we grow our business. That's what our executive team is focused on we don't make short term decisions that jeopardize future growth vectors like wallet, we're making those big investments and we don't under invest in the business generally we need to maintain forest.
And conviction on our product strategy.
Now that said, we recognize that it's imperative to be prudent on the opportunities we per sale and so we're always going to build in flexibility around head count or other fixed resources and if we do all of that the rest is going to take care of itself.
Alicia anything you want to add on that thanks.
Thanks, Emily I agree with everything you said, but I also think it's important that we share with about profitability and unit economics.
We've proven that our core products have strong unit economics, and we've demonstrated that claim it can be profitable for example, we delivered over $4 billion of adjusted EBITDA in 2021.
We are highly confident that we can choose profitability over reinvesting in the business.
However, we chose investment.
As we shared with you last quarter, we are choosing to make 2022 investment year.
And that's because we believe that investing now a key to our future of becoming a multi product platform serving a diverse customer base and this is the year, we chose to make them hard stats on NFC on derivatives go into decent profit international growth and expanding clavius wallet functionality essence key examples.
It could have been more than sequentially, we kind of move more slowly and focus on profitability, but we have the resources, we have a disciplined approach to managing our business through peaks and valleys and we're confident in investing now Google yielded diversification, which handle expanding engagement and revenue opportunities when market conditions change and I just think it's really important industrial understood.
But we do have the ability to have the profitability.
Consciously made the choice to focus on it and specification.
Our next question is about India. So some shareholders are curious about the recent developments in India can you explain the whole thing of API transfers, there and what impact will that have on your expansion plans in the market.
Yes, sure I can give an update on that so.
For those of you who may have missed the news that we launched in India on April seven and this includes the on ramps into the crypto economy.
There's a lot of interest in crypto amongst the people that are in India. So we had an integration we would call Upi and.
This is a great example to just our international strategy. So a few days after launching we did a disabling upi because of some informal pressure from the reserve bank of India, which is kind of the.
The treasury equivalent there and India is a unique market in the sense that the Supreme Court has ruled the day.
Band Crypto.
There are elements in the government there, including that the reserve bank of India, who.
Don't seem to be as positive on it and so they.
In the press, it's been colder quota shadowban.
Yes.
Basically they are buying soft pressure behind the scenes to try to tackle some of these payments, which might be going through Upi I guess, we have a concern that they may be in violation of the Supreme Court ruling, which will be interesting to find out if it were to go there, but I think our preference is really just to work with them and focus on re launching I think theres a number of paths that we.
Have to be launched with other payment methods, there and that could default path going forward. So my hope is that we will be live back in India in relatively short order along with a number of other countries, where we're pursuing international expansion. Similarly, I guess just to zoom out for a minute.
One of our theories here in my theory is that.
<unk> produces information so it's not always clear as we go to these countries all over the world everybody has in various states of kind of education or lack thereof about crypto and Theres a lot of work to go meet with policymakers around the world.
To.
Teach them about what the AML capabilities are and what are the positive benefits. The people in these countries generally really want crypto and so.
To me that says that most places in the free World and democracy.
Crypto is going to eventually be regulated in legal but it's going to take time for them to get comfortable with this and the way that we pushed the conversation forward is by taking action. That's why we're going to launch even if we're not exactly sure. How it is going to the reaction is going to be received we're going to launch because it forces. The discussions that you have now the press is talking about in India.
Now there's meetings happening that are going to talk about how we get to the next step so thats generally our approach with international expansion.
Our next question is about claim based cloud.
Can we provide for shareholders there.
Are there other principal hurdles, what other principal hurdles to growth education functionality or anything else Brian .
Yes. So currently cloud I'm really excited about I mean, if you just again zoom out crypto is such a new market that means theres a lot of startups being funded that are coming into build applications. In this space and it's not just startups there is actually existing fintech companies Neo banks.
Traditional financial service companies are all thinking about how to integrate crypto their customers are asking for it.
Even non financial service companies by the way.
If you want to accept crypto payments, where they're integrating crypto into their web two <unk> companies. So.
I actually think like in the same way that most companies use the internet now I think most companies are going to end up using crypto in some ways you perform in the future.
You don't need to reinvent the wheel Coinbase has spent a lot of time and energy over the last 10 years building a lot of this quarter. These core technologies like how to store crypto securely and how to connect into all the blockchain make sure they are staying in sync.
To do Washington analytics to make sure it's done in a compliant way and how to do trade crypto and stake in <unk> and index all of the metadata that's out there it's almost like another segment of the internet that needs to be.
These companies need help accessing it and so I think for many of these companies they are not going to want to in.
The same way that they don't want to run their own data center unless that's their core competency, we're going to use a cloud product.
For many of them crypto is not their core competency, but they do want to integrate quickly into their products.
So the use of <unk> and <unk>.
My hope is that.
Basically convinced is going through a transition.
Transition, where many of these services that we've had to use internally for our products over the years. We're now in the process of externalizing them.
Through our <unk> cloud product and building that in a way that's robust and actually makes our internal service was better to have them cleanly decoupled and architected in the way or any third party can also use them.
The question also asked about growth in education and things like that so of course first we just need to get the product functionality to everyone would be that's a good first step but.
We started sponsoring hackathons engaging with the developer community in various countries around the world there is pretty exciting to see the amount of interest from developers.
Some indications.
The most common elective in computer science programs today is like AI and crypto are the two biggest ones. So I think as more and more crypto companies keep getting built and you're just seeing companies integrated we're just going to sell picks and shovels earnings this whole growth.
Great, Okay, well, let's switch gears and take some live questions from our analysts operator can you start up please.
The first question comes from the line of Peter Christiansen from Citi through no loan.
Thank you good evening.
<unk> I was just hoping if you can.
Qualitatively give some color on how funded account retention is working.
And cost of acquisition there just generally what trends are you seeing now.
Year to date.
Perhaps how they've differed from.
Last year and then finally.
I looked at your balance sheet and it looks like cash is more than a third of your market cap right now and I know there is a.
There's a lot of reserved.
Firepower.
In there, but is there a point, where we're coinbase would consider repurchasing stock. Thank you.
Thank you for the questions. So let me just start with color on funded accounts, we don't give a specific metric on funded accounts, but I think the best way you could look at that in our shareholder letter is to look at our assets on our platform. So we ended Q2 with $256 billion of assets on our platform of which 123 billion were retail and $134 billion institutional.
Now that is down off of Q4 of 278, but its roughly flat to Q3 and so what you'll see there as we had growth in retail funded accounts between Q3 of 2021.
One of 2022 as well as materially higher than earlier in 2020 beyond continuing to see growth in total the detail on that account.
With regards to then.
Second question about perhaps on the balance sheet, we use our cash required bucket, we think about our task for funding our operating will be the first self insurance for potential risks on our platform. We're using a portion of it for lending and from a balance sheet to facilitate and boot strapping essentially the bottom lens market for KEPCO and allowing institutions to trade on margin.
Eventually providing loans to our retail users backed by crept down and so that is a growth vector for us at that cash we have not made any commitments to returning capital to shareholder that I am prepared to share today, either dividends or share buybacks.
Alright, excellent Tvs, Ken Worthington from Jpmorgan Your line.
Hi, good afternoon.
To follow up on the earlier question on the <unk> platform and maybe extending it to the network effect here.
My opinion is success at least can be measured by building users and getting inventory. So maybe question each of those out how are you marketing the platform to get more users. We can see the emails to existing customers and the commission free trades I was hoping you could flesh out the social strategy and other things you are doing it.
Doing to build out to users and then on the inventory side, you mentioned minting that seems to be a part of it.
But are there steps you're taking to attract is they're big projects to list on your platform, maybe getting projects to sole list on the claim based platform. So what are you going to be the drivers also to build the inventory and then cleaning up here can we talk about the network effects of developing the crypto trading together with the wallet.
Now together with the crypto NFC platform on a common platform with lots of users engaging globally it would seem to be.
Something powerful here, but I'm, hoping you could flesh that out.
Yeah. Thanks for the question I'll start off and then and when we should feel free to underpin.
So I think you are correct. There is a network effect here both in the traditional sense and that we've added social features to <unk> and so people are coming in and <unk>.
Discussing and liking and there is basically a ranking algorithm that we've put in there which is a permanent one today, but it will get better and better over time.
Recommending.
T content that customers may want to see based on their prior activity on site and also unchanged data.
Thats publicly available out there but.
There is certainly a network effect there and then as you pointed out Theres also im not sure. It would be a network effect that you could call is that which is basically.
I would call it vertical integration really which is that.
<unk> already has.
Many many customers, whereas that's where they store their crypto and Thats, where they bought it and so it's a sort of a crypto. There then it's just much easier if it was one more click the defining a fee that would be much easier than having to move their crypto to another wallet and then connect it to a third party application using our chrome extension or something like that.
This piece.
Absolutely correct. We actually this is the part where we havent actually fully leveraged our distribution and it's on our roadmap. If we can just natively integrate <unk> into our existing products and you're correct. It was already on quite a bit. It's been it's just one more quick to buy it I think that will be really powerful.
You touched on marketing in.
There's certainly a number of efforts there I mean, we ran some really cool product ads during the Olympics for instance.
I think some of our marketing around the launch was really cool I certainly liked it.
I think theres a lot more we can do with marketing, especially as the product matures, but I also feel like we haven't even built.
The majority of the functionality that we really want and so I think we will dial up the marketing of the product matures, a little bit and the best marketing. We can do is kind of what you alluded to earlier, which is just less leverage our existing user base, that's going to be really powerful.
Emily Alicia O&M.
Yes.
Alright next question comes from the line of Felicia and discipline.
They consume <unk> lines.
Terrific. Thanks, guys. Thanks for taking my question again.
As painful as this downturn is one day seems like they are sitting in a very unique competitive position that meaning in a much stronger one a lot of other players in the market given the cash on the balance sheet talent et cetera can you just discuss or elaborate a bit further like how as you look out having lived through these downturns before.
Four how let's say a year from now you anticipate that youll emerge actually in a much stronger.
<unk> position.
Coming out of it thank.
Thank you.
Yeah, I can start off and then different will jump in so.
I mean look we've been through enough of these where.
I think.
In the up market people are irrationally exuberant and then in the down markets people are irrationally pessimistic right.
Remember this is just like we had one quarter that where the market kind of pulled back I think they will still there'll be real kind of blood.
Blood running in the streets, something like that if it continues for four quarters or something like that.
I will say that we have.
Our cash balance does give us a big advantage here in the sense that we can actually continue to invest.
In the past, we've seen people get distracted with GGP will get discouraged between companies pivoted to try to do something unrelated.
And it's generally been a mistake so I E.
Honestly I feel like we're better operating in this environment.
Somehow like the long term focus and rigor in how we allocate capital and how we plan different scenarios. It's allowed us to really pull ahead in down periods and so.
I think coaching the team on that mindset is really important too because a lot of our team has joined.
Let me join when <unk> was in an upmarket and so people oftentimes have to see their first cycle than the they kind of get it at a deeper level and.
The future ones are less and less scared.
Okay.
I guess can you expand on that please.
And it's important that this was in a range of scenarios that we already planned for and we're committed to our product roadmap. Our committed team that will create products irregardless of what the market is as we put on a little bit of a blinder because at the end of the day, we think great products, serving our users will then be the right long term outcome for climate and that gives us dry powder than when the market's down too.
And strategic acquisitions at Emory alluded to earlier, we bought back in the last crypto winter.
When other companies are needing access to hope that we will be sitting strong and be prepared to that extent as well both organically and inorganically.
Yes, I guess last thing I'll just mention is that there is a pretty big gap between.
Revenue multiples for us as a public company and what we're seeing in private market crypto investments currently and so I think reality is probably somewhere in the middle of that gap probably needs to close and so we anticipate probably over the next year or so that we'd see corrections in private markets for that or are in both directions frankly so.
Is that it.
That'll take some time to kind of move through the private markets and I think that could change the outlook on the M&A front as well.
The next question comes from the line of <unk> <unk> from Goldman Sachs Juvenile lines.
Hey, guys. Thanks for taking the questions and I appreciate all the color on the thoughts I imagine the business in this macro environment I wanted to ask a question on just the hiring that you guys have done one of the SaaS has stood out to me in the report this quarter was the 1200 people added.
And I know I think Emily talked earlier about the investment strategy around 700010, which is obviously very helpful. But I guess I'm wondering if you could just provide a little bit more color on what exactly the 200 people are doing and how you're kind of allocating it just strikes.
A large number relative to where you guys start off and I think we know.
Paul.
Part of the plan at the beginning of the year, but we get the question a lot around what are these investments in a way are they actually being diverted to switch any additional color. You can have and then related you guys have this guidance for the negative.
No more than $500 million in EBITDA losses for the year could you just talk I mean, it looked like the exit run rate for the quarter on an <unk> its something like 25% if I'm not mistaken.
Any color on how close we are to having to take.
The actions to mitigate.
The loss and where would those kind of come from for the remainder of the year. Thank you.
Why don't I start and then Alicia and brining them by then.
Thanks for the question well.
So we.
At the highest level when we think about.
Adding head count we think about.
How about the product goals are and then how do we amplify them through the addition of head count and when we think about the composition of head count roughly speaking, we're aiming for 50% of any given time of our head counting in product engineering and design.
And the reason that matters is because we're a technology company and we want things to be done and as automated away. It's possible thinking nimbly about the suite of products. We offer for example, if we found trading services, we want to be able to use one trading services layer to them, how our retail and institutional trading and.
To be as efficient as possible.
And then as you mentioned, we think about the 72010 spreads such that.
Of those 1200 product engineering design folks and the rest of them, how do we kind of map them against that thanks. The other thing I'll mention and then Alicia <unk>.
I think that one of the things as we've grown is just making sure that were.
We're building the right infrastructure as we scale up and have ever knew increasing requirements on <unk>.
Reliability and scalability and the other thing is as a regulated company, we invest pretty heavily in compliance and we know that that is important to us because it helps us solidify our relationship with our customers and regulators and so that's another.
Piece of head count that matters, Alicia anything to add.
Okay.
My other question well, so youre correct as we look at recent times, we're heading into the high <unk> and we shared a chart in our shareholder letter on page 15 that one can take a look at that give you a sense that with 2017 to date, what <unk> has kind of fluctuated that agency on a month to month basis Theres a lot of volatility.
But it kind of been on an annual average kind of hit between the 13th and 14th with the exception of 2021 months with an all time high levels.
So it has trended down but it hasn't changed materially from the 2019 kind of other crypto winter time period.
The levers that we have at our disposal as we can slow the hiring ramp.
Obviously spent a fair amount of our expenses in our CX <unk> two with very high levels in Q4, given the volumes that we've seen and so those costs will come down as volume temper.
We also had other levers around other variable cost spend that we will then adjust to ensure that we can try and hit that $500 million EBITDA capital expenditure.
Great operator, we have time for one more question.
Alright.
Question would be pulling loan from open New England Journal lines.
Good afternoon, and thank you for taking my questions I have two quick questions. The first one it's how will <unk> potentially participate in the adoption of lagging network at a park Latzoff coinbase integrating to exchange into Lightning network and then the second one is on Coinbase wallet.
Can you talk about the penetration how do you measure success and the potential next step for for wallet. So like the network has bought it. Thank you.
Yes, I can start off on that.
Providing that work for those who don't know lending network as the later two solution for bitcoin, which lowers fees improved payments capabilities and we think it's a really important innovation that we'd like to support there is of course later two solutions across a variety of blockchain and so.
So.
<unk> has some <unk> solutions as well and just broadly I would say, we're seeing a lot of interest from customers in <unk> solutions and you could think of it as I think it could be as important as the internet moving from dial up to broadband.
In terms of the new applications in the utility that will that will unlock so we're working really hard to integrate every layer two solution out there that our customers want.
Have a specific date to share with you about lightning network, specifically, but it's certainly one of the ones on our roadmap.
Let's see you'd asked about <unk> wallet and how we measure success.
So we look at similar metrics to the rest of our business and should we look at <unk> monthly transacting users. We look at the amount of crypto This company.
In previous wallet, we look at revenue things like that.
<unk>.
There is a lot that we're doing on previous wallets.
We have a chrome extension that's out now so is that can link it directly to your mobile wallet.
You can connect your ledger to it we're supporting new blockchain throughput.
<unk> wallet.
We are doing a making it easier for people to connect third party applications.
Both on mobile and through the web browser on desktop and sort of they want to access like the whole wide rollout there and then similarly.
Connect making it seamless to go through the process of buying and crypto or topping up your wallet to connecting it to our NAV.
Using that app without needing to have a computer science degree and then making sure that it's secure and so people don't accidentally move their funds or forget their password or anything like that.
I personally think credit quality is as one of the most important things were working on because it.
It's going to allow us to offer the same functionality and services that we do at our retail app.
In a lot of emerging markets, where the regulatory environment is less clear is going to allow people to use the very latest stuff happening in crypto and a more decentralized way things like decentralized exchanges in <unk> and <unk>.
And it feels like a lot of this stuff is coming first.
While it's focused ordeal.
Wallets out there and even <unk>, we launched first which support only for Salford study of wallets, including putting previous wallet. So.
We're making a big investment in that I think trust and ease of use are the core things that we focus on just like all of our products.
And I anticipate that to be a bigger share of our infused over time.
And when we Shouldnt do you want to add.
I think that the only thing I bandwidth is just that we really do think while it is the gateway to went three and Thats why we have such a strong belief that making the investment and it's the right thing to do for the long term.
Great well. Thank you all for joining us today, and we look forward to speaking you sticking to you again on our next call.
This concludes today's conference call you may now disconnect.
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Okay.
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