Q4 2022 Coinbase Global Inc Earnings Call
Good afternoon. My name is Paula and I will be your conference operator today at this time I would like to welcome everyone to the Coinbase fourth quarter and full year 2022 earnings call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to queue up to ask a question. During this time simply press star one on your telephone keypad.
So at any point, you would like to remove yourself from the queue. Please press star one again.
And you'll get Jeff Vice President Investor Relations you May begin your conference.
Good afternoon, and welcome to the Cohen based fourth quarter and full year 'twenty two earnings call. Joining me on today's call are Brian Armstrong co founder and CEO , Emily Choi President and COO Alicia.
<unk> and.
And because regulatory questions may be top of mind, Paul Great Wall Chief Legal officer is also joining us today.
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 would 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.
Included in our SEC filings.
Our discussion today will include references to certain non-GAAP financial measures reconciliations to.
To the most directly comparable GAAP financial measures are provided in our shareholder letter and our <unk>.
And 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 say technologies to enable our shareholders to post questions and in addition to that we will be taking some live questions from our research analysts.
So with that I'll turn it over to Brian and Alicia for opening comments.
Thanks Neil.
So I want to touch on three themes in my opening comments. The first one is going to be about how we're reducing our opex to operate more efficiently and better generate EBITDA in the future.
Second theme is gonna be about the current regulatory environment and the third theme is going to be about where we are in this crypto cycle. So let's start with our reductions in opex.
When <unk> went public our goal is to operate at roughly breakeven across crypto cycles, but the market has changed and so we're evolving along with that.
We're now evolving the business with a goal to generate adjusted EBITDA in all market conditions.
In January we further reduced head count by 20%. This follows the head count reduction of 18% we did last year in June .
We've also worked hard to reduce the amount of dilution, we're taking from stock based compensation and adjusted our compensation policy across a number of dimensions. Our total dilution since going public in April 2021, what's been about 5%.
These changes will ensure that we continue to manage dilution going forward.
Now parting ways with colleague and changes to compensation are never easy, but I think this is helping us be a more efficient company as a result, and it positions us to better weather. This downturn with a very healthy balance sheet and continue investing in the future. So we can be the global leader in the crypto space.
I was also really glad to see that our subscription and services revenue grew 53% year over year to 792 million. In 2022. This was amidst a major downturn in crypto of course from 2021 to 'twenty two.
And I think this really shows that our strategy of becoming an all weather crypto company is paying off with more predictable revenue streams.
So next I want to talk about the regulatory environment that we're currently in in the wake of <unk> and other crypto company failures, we have seen increased regulatory scrutiny of course.
But let me be very clear I believe this is a good thing for the space and that it will ultimately benefit coinbase.
It's really easy to look at the headlines and assume that increased regulatory activity as bad for crypto, but I really don't agree with that.
Theres, many legitimate companies encrypted and the crypto space like Coinbase, and those of Us, which prioritize trust and compliance from the beginning I believe will be beneficiaries.
This really goes back to the founding of Crane days more than 10 years ago, and when I started the company I really decided that this was going to be a compliance focused company, we were going to do things the right way, even if it was more difficult.
I knew that they were going to be companies that would come in and try to.
Cut corners, they might even grow really quickly because it's easier to move fast when you don't have to follow the rules, but they will inevitably come crashing down because.
Regulators don't always act quickly, but they do eventually act.
So we decided to do things the hard way playing the long term game and built a very different company over the last 10 years.
In many cases, we actually practically put in place appropriate controls before they were even required.
Anticipating that this greater regulatory clarity would be coming.
So I think we're really well positioned in this type of environment and how how things are changing.
And we need to we need more clarity in the United States around regulation, and we probably need new legislation at some point, but I'll talk about that a little bit later.
So third let's talk about where we are in this crypto cycle and I think it's important to always look at the fundamental indicators that we have and try to separate out the signal from the noise and the negative headlines.
The narrative in crypto it tended to flip every few years, it's either irrational exuberance or despair. Neither one is true at any given time, but were in one of those despair phases right now and that also means there's an opportunity for builders who are focused in this space like coinbase.
So if you take where we are now are in 2022 and compare that to just two years ago, you kind of have to look over at least the prior cycle you can't just look at what happened in the last year the last quarter.
So the <unk> price in January of 'twenty, 'twenty, three is up 80% compared to the average price in 2020 the.
The number of software developers working in crypto has doubled since 2020 and Thats a great predictor I think of where the future is going.
A number of major brands, who have started integrating web <unk> and NFC technology is totally different Starbucks Adidas, Nike Coca Cola and social media platforms like.
Instagram Twitter and read it. These are all integrating crypto services into their products and customers who use those things are going to need a a wallet crypto wallet, that's where coinbase comes in.
We even come a long way on the regulatory side outside the U S. Just about every major financial hub is buying to be the leader in web three we've seen a comprehensive crypto legislation get passed in the EU with Mika.
Even the UK Hong Kong, Japan, Brazil are all making very positive steps toward comprehensive crypto legislation and I think we'll even get that in the U S. Eventually.
So in short we remain incredibly bullish on this technology in this industry, we're operating more efficiently at this new size. We believe that we will be in a net beneficiary of increased regulatory clarity.
And of course, ultimately we've got to keep driving the utility of crypto improving our products driving more and more use cases that are 1 billion or more people can benefit from this technology and we can increase economic freedom in the world.
So with that let me turn it over to Alicia to talk about our financial results.
Thanks, Brian first one in a recap of our Q4 results are.
Our fourth quarter, net revenue increased 5% quarter over quarter to $605 million.
This was driven by strong growth in our subscription and services revenue.
In terms of transaction revenue first we gained trading value market share.
Trading volume declined 9% quarter over quarter, but it outperformed the total crypto spot market, which saw a 21% volume decline quarter over quarter.
As a result, our total transaction revenues declined 12% to 300.
$22 million.
In contrast, subscription and services grew 34% quarter over quarter to $283 million.
This was largely driven by our participation in the <unk> STC program.
Which was supported by the growth in interest rates in Q4.
Our total operating expenses increased 3% quarter over quarter to $1 $2 billion, which was consistent with the outlook we provided.
There are three factors that contributed to the slight increase in spend first we had higher seasonal marketing spend.
Second we saw timing of certain SBC awards increased costs quarter over quarter and third we had a $50 million settlement with the New York DFS.
Absent this settlement expenses would have been down about 1% quarter over quarter.
I wanted to zoom out now and look at the full year 2000 to retail.
Our adjusted EBITDA was negative $371 million in 2022, well within the $500 million lost ground. We have provided for in February of 2020 or about a year ago.
Okay.
This included negative $124 million of adjusted EBITDA in Q4.
I wanted to note, while this was slightly lower than Q3.
Our revenue improved quarter over quarter.
Our recurring expenses, excluding the impact of the DFS settlement were lower quarter over quarter.
So the primary reason EBITDA was lower in Q4 was due to a foreign exchange loss that we experienced in Q2, it was not fully realized until Q4.
I wanted to shift gears now towards our outlet.
Crypto markets have improved so far in Q1 as compared to Q4.
After market cap is up 40% year to date through February 17th.
Crypto asset volatility of fibers were higher over the same time period.
As a result, we generated $120 million of transaction revenue in January 2023.
I cannot underscore this enough we.
We caution investors to not extrapolate these results foray.
We all need to keep in mind last year's experience at how quickly markets can evolve they evolve quickly between Q4 and Q1.
And they have the potential to evolve again, and we are mindful the industry dynamics across multiple dimensions remain in flux.
And that spirit, we've updated our outlook for 2023.
Our outlook is reflecting what we believe are the most stable and predictable elements of our business, specifically subscription and services revenue and expenses and we are now providing one quarter of outlook.
With that we expect Q1 subscription and services revenue to be between 303 hundred $25 million.
As Brian mentioned, we are focused on cost management and operating with discipline.
That means we're more rigorously assessing our product market fit, but taking a scrappy approach to investments.
And we're getting back to smaller can sizes.
For Q1, we anticipate technology and development and general and administrative expenses together will be between 625 and $675 million.
And sales and marketing will be between 60 and $70 million.
When totaling these opex categories. This represents a more than 30% reduction in Q1 compared to the Q4 reported results. If you back out the 50 million settlement from Q4, we have reduced recurring expenses by more than 25% quarter over quarter.
Embedded in that expense outlook is an expectation of $215 million of stock based compensation in Q1.
This compares to 431 million of stock based compensation expense in Q4.
So we brought that down by more than $200 million quarter over quarter.
Separately, our outlook includes approximately $150 million for restructuring expenses associated with our January had care protection.
Overall, our goal for 2023 is to improve adjusted EBITDA in absolute dollar terms versus full year 2000 Greenfield.
And we believe our cost reduction efforts position us to do so.
As we look forward, we don't expect to meaningfully increase our head count, which is one of our largest expense drivers compared to our Q1 levels, which we anticipate to be around 3650 people.
Alright, before we go to Q&A I want to briefly give some context around two updates you're going to see in our 10-K that we filed this afternoon.
Following the events of 2022, which included failures and other situations of financial distress at certain crypto companies like MTX. The SEC issued new guidance in December unexpected disclosures for public companies like ours that are crypto market participants.
While we already disclosed much about was outlined in the guidance. We did make some additional disclosure this quarter. So youll see an expanded discussion of how the 2022 events impacted claim base, how similar events could impact our company with expanded disclosures of our lending activities counterparty risks and the interconnectedness rehab with other market participants.
Accordingly, you'll see updates on our business section MD&A and risk factors. These are in direct response to the new guidance. The full letter can be found on the website.
So with that I think we can turn to questions Neil.
Okay. Thank you bill so with that we'll turn to shareholder questions and we are taking the most upvoted questions as determined by the number of shares and we might combine questions I'll touch on the same theme.
The first question is about.
It has coinbase considered operating in offshore business, perhaps with big four audits and additional risk management controls to offer new products International investors wallet awaits regulatory clarity on such products in the U S.
Thanks for the question. So our mission is to increase economic freedom in the world by enabling better access to credit crypto to.
So I'll fill our mission, we have to be a global company and as such international expansion is going to continue to be a very core part of how we operate.
In the past quarter, we had a launch in Australia, we have an upcoming launch in Brazil, and we've been very encouraged by the positive regulatory developments in the EU with meager in the UK as long awaited consultation. So you can expect to see us continuing to invest in the UK and Europe . They are really important parts of our business.
We're going to lean into working with jurisdiction to help us maximize global coverage and we will always be focused on offering our products in a safe compliant way with as you referenced good risk management and sound audits. So theres nothing to announce here today, but international continues to be a focus area for us in 2023 and beyond.
Thanks. Emily next question has coinbase considered updating its P&L target from operating at a loss during times of trading volumes like those in 2022 and 2023 year to date.
It's operating at breakeven or profitability during such times Felicia.
I feel like this question.
Had a preview into Brian's opening comments. So this is not a change we can make overnight, but yes as Brian shared in his opening comments, we obtained for our approach that we are building towards the future.
So we used to say clearly it would roughly breakeven over time over a cycle, but now we're very focused on building a company that can generate EBITDA in all market conditions, which as I say, we aspire to be an all weather company.
Specifically for 2023, our goal is to improve our adjusted EBITDA performance in absolute dollar terms year over year.
And we're going to continue to work to build revenue streams with less volatility.
And while our focus is on improving adjusted EBITDA as I shared in my opening comments, our SBC our stock based compensation is coming down too.
So we are focused on the overall expense performance and we think that will set the stage for improved financial performance.
Yes.
Sorry, I was on mute next question will coinbase expansive stocks to compete with platforms like Robinhood Brian .
Yes, I can take that one so the short answer is no.
We feel our best opportunities are still in the crypto and the web three space Theres a lot of <unk>.
Blue Ocean there we wanted to make sure we're the leader in that space.
And there are a number of places people can trade traditional securities today. So I don't know, how we would necessarily be differentiated on that dimension. There is an exception to that I can think of which is that if we found a way to token is our wrap traditional securities making them more kryptonite of that could be pretty interesting I think for our customers and for us It would unlock some additional functionality for instance, 24 seven.
Trading.
People could more easily traded fractions of a share or they could get access to more global capital but.
The regulatory environment in U S. Right now is not currently is suitable to that type of product.
Something that we're working to change we actually acquired a broker dealer license several years ago, but it's it's dormant right now and we'd like to work with the FCC to make it active.
Sure.
I think thats something like that that would allow us to wrap traditional securities could.
I also just make it really simple for people to go and register a crypto securities that could be pretty interesting and something we'd like to pursue in the future, but I don't think that'll happen in the short term. So it's something we'll have to work towards over time.
Next question, how does <unk> plan to compete with other trading platforms that allow its users to purchase crypto without these alicia.
Thanks for the question. So I wanted to start with just a comment that there are no true zero fee products out there.
Some monetize like cleanly SKU via our fees that we post but others monetize on the backend where the fees are not transparent to the users, but there really aren't node zero fee platforms. So we do generate most of our transaction revenue from our retail customer base there.
They are testing our products because they are safe and easy to use and we're giving them an integrated platform to engage with a range of crypto assets and activities as well.
Stake.
Participate and you spend your crypto on our claim discount you can do many different things and we believe this is a premium product that our customers are willing to pay for.
But we also health of our subscription product clean baseline where users can trade without fees. So we are definitely experimenting with different monetization models in different ways to offer our services to our customers.
As we've said before over the long term. We believe these will compress due to commoditization, we have yet to see that crept down and we think that after coming through 2020 until there is more value placed on a trusted platform. Our regulated complained approach and people are willing to pay for that premium offering.
Next question, how is coinbase working alongside lawmakers to shape U S Crypto regulation Brian .
Yes, so I've been spending a lot of time in D. C. I was just there last week actually and I would say policy is my top priority for this year.
So when I was there just last week, we met with a number of relevant senators that are working on different crypto bills.
There's actually a lot of bipartisan support I would say out there for getting comprehensive crypto legislation passed there's a recognition that in the wake of MTX, we need stronger consumer protections Theres also a lot of excitement about the potential of this technology.
There's a lot of desire for people to have this built here in America and they feel that it's important for all kinds of reasons economic gross national security.
Et cetera. So I was very pleased to see that I think the folks that I spoke with they also realize that the U S is a little bit behind right now.
<unk> has already kind of passed comprehensive crypto legislation, they're looking at.
Others like in the U K, Singapore et cetera that are that are moving on this dimension and seeing what they can take and put in there bill.
So I am spending more time in D C, but I think what's even more important than that actually is that we can go and activate the roughly 50 million people or so who have used crypto in the United States and asking them to as they are.
A very passionate about crypto many of them and so its about asking them to contact their representatives.
Encouraging them to say, we want this industry to be built in America was struck with strong consumer protection and preserving the innovation potential so.
I think we need to really make it clear that you said.
Let's say in the upcoming election in 'twenty 'twenty four for instance that this is going to be a big issue I think for a lot of voters crypto is now used by 1% and five households in the United States, and it's becoming a pretty powerful lobby and constituent.
So <unk> of course, we can do our part here by helping organize and we've been actually giving customers information right in our app about policy issues and even scores for different candidates that represent them.
But we're just one company in this space the whole industry is really going to have to come together to make this happen.
Of all the crypto users out there. So there's lots more that we're doing we're donating to key crypto advocates we've hired an incredible policy team our head of policy fire <unk> Kim from Goldman Sachs, where he was co leading policy.
We're working with various trade groups, we actually wrote a really detailed petition that we sent to the SEC requesting more clarity on regulation and pointing out sort of many of the areas where in the law today, it's not clear how crypto should be regulated.
We have a public policy page on our website, which I encourage people to go check out. So there's a lot. We can do here and I think it's a major focus for myself and the company.
Actually Paul our Chief legal officer.
You want to add anything here.
Yeah happy to you Brian .
Coinbase, we have a 10 year plus a record of regulatory compliance engagement.
We remain committed to working with regulators to develop solutions that are sensible that put consumers first and protect them and ultimately helped to grow the crypto economy. We are in constant conversation with all of these regulators and of course with policymakers as well, particularly in DC in those conversations are adjourn.
That is very clear regulators should follow the standard course, and undertake public rulemaking that we'll give clarity not just to the industry and to consumers, but of course investors as well the bottom line is this not everything in crypto as a security.
Just not the lots of day and there shouldnt be the law tomorrow and in the future Securities laws doesn't.
Exist in order to turn everything of value in our economy, whether it's baseball cards or sneakers or digital assets like crypto securities and only a small number of people or the elite are able to buy a trade. That's why we have to get these lines right. It's not just about crypto and so in that same spirit last July as well.
2022, we filed a comprehensive petition for rule, making with the SEC that outlines the issues with applying an existing or the existing security seem to modern digital asset that we suggested each area in which the SEC could and should engagement rulemaking in order to provide clarity for four.
The entire industry.
Very helpful that the Senate is we'll recognize that rulemaking is is the appropriate path forward and importantly, we're not going to stop engaging until they do so it's not too late one final point just recently the SEC issued a notice of proposed rule for safeguarding crypto asset.
With qualified custodians, such as client base, we see that as a signal that the SEC recognizes and is willing to follow standard public rulemaking process in order to get these answers right.
Great. Thanks next question are there any plans to initiate stock buybacks or reduce overall debt load if the company valuation becomes low enough Alicia.
Thanks for the question.
So I would share with you that we constantly evaluate what is the most accretive way to allocate our capital.
So it's something we've looked at we've talked about but today, our focus is on cash conservation and maximizing.
The options that we have available to us maximizing our ability to navigate through this transition period as we shift from being a company that has volatility in our P&L to a more stable P&L, we can have the opportunity to generate EBITDA in a down market.
So we have the right to revisit this we don't have any news to share at this time around the stock buyback or debt buyback program.
I would point out that while we do not have a formal buyback program. We do generally net settle our equity awards to employees.
What that means is that we pay taxes on behalf of the employees in those shares don't end up in the market. So as a result, since we went public with effectively bought back just over 5 million shares due to this approach.
So while that's not a formal stock buyback it has the effect of the reducing shares outstanding and reducing our dilution.
Put into the market.
Our next question is with cracking is taking as a service being cracked down upon by the FCC, what differentiates coinbase as taking as a service for mirrors and what assurances can you give investors that their funds will not be affected Paul.
The coin basis, taking products are not securities and so they are not affected by this news.
Sticking on Coinbase continues to be available to our customers and staked assets continued to earn rewards.
As taking products that we offer on coinbase are fundamentally different from the yield products that were described in the recent first reaction.
Against cracking.
The differences matter just to highlight a few of them first and foremost.
On claim based customer assets always remain theirs at all times customers retain the title and ownership of their tokens and of course, we hold all user assets, including <unk> one to one.
Another important differences that our fees are tethered to reality is they are determined by the network protocols and commissions that we earn.
We take are fully disclosed in our house.
Clean base of our customers have a right to their insurance, we can't simply just decide not to pay any returns at all and critically.
Point based customers had deep transparent you'd say, it's entire financials because of course appointments is a publicly traded company with public audited financials.
Bottom line the Queen based customers have access to proper disclosures clean base is always disclose critical information for each taking users such as what happens to assets when their stake and we do that in a retail user agreement.
Rules, making clear these distinctions would provide very real clarity and we think of the public shouldn't have to parse complaints in federal court in to understand in order to understand what a regulator expects.
Our next question is what is going to be it's going to do to recover the value of its stock from the initial IPO.
Emily.
I'll take that yes.
<unk> is focused on generating long term value. We are the leading regulated player and it's still a nascent market and as such much of our economic potential will come in future years much like it has for other new category leaders over time.
And like all tech and high growth companies with experienced a market reset over the past year. This isn't coinbase or crypto specific that said, we are laser focused on driving positive shareholder value and in particular are focusing our energy on one cost management and efficiency two investing in core product growth. So that we offer our user.
The absolute best Crypto products and services and three landing a positive regulatory outcome for the ecosystem and for our users.
Next question.
Do you feel like Coinbase can play a big role in making crypto currency gone mainstream Brian .
Yes, absolutely I mean, one of the one of our goals as we want to get crypto two 1 billion people globally that would tell me that we are starting to have a real impact on a global scale around economic freedom, which the mission of corn basis to increase economic freedom. So.
I think we have a big important role to play in that and I think it happens it's going to happen across a number of different areas.
One is the scalability, we just we need to get the blockchain to be more scalable. There's a lot of important developer work happening on that dimension and Theres a couple of areas, where <unk> been able to help on the margin, but there's many great team is doing that.
Also in terms of usability I think just sort of like many people don't understand how electricity works, but they can benefit from it they can.
They can access it through a light switch credits Hasnt had the role here to play and just trying to make crypto easier to use many people. They don't even really know how it works underneath but they just want to get paid they want to transfer funds with less lower fees. They want to earn a living they want to have stable currency et cetera, and so we can make those things easy and intuitive.
And then lastly, I think on the regulatory environment, we have an important role here just to play around education.
Mucusy policy.
So there's a lot we can do to try to help crypto get to that 1 billion user mark and beyond.
Okay last question before we turn it over to the analysts Coinbase NFL team. One what is your cumulative loss to what is your plan to reduce the burn increased market share and overall, what's your plan in connections Coinbase NFC, what will you do differently next time when developing new platforms.
Emily.
So we allocate our resources 70, 2010 70 to core of 'twenty, two strategic adjacencies in 10% to venture opportunities.
We are always looking to expand our portfolio of products to serve our customers and the best way.
Keith We are an example of a venture initiative in that 10% bucket.
And we continue to see medium and long term opportunities here.
We've got a very lean team on it now, but we're not throwing in the towel by any means there is a lot of fortune 100 companies, who are experimenting with NFC opportunities, including meta Starbucks Nike and Houseware Bush and we're proud of our product that is creating a more social customer NFC experience. We have a lot of work to do but we want to continue to invest.
Limited resources there so in terms of investments as we indicated in the shareholder letter, we're taking a more rigorous approach to investment in new and unproven products, but we're going to do that in a very lean efficient way and get back to just smaller team sizes.
And getting things out there.
More of an experimental way so that we do it in the most operationally efficient way possible.
D C. With an example of something that started with just a couple of folks and that has expanded to be something much bigger.
Okay. Thanks, so with that Paul let's switch and take some live questions from the research analysts.
Thank you. Your first question comes from Owen Lau of Oppenheimer.
Thank you for taking my question. So I have a question about international expansion, So yesterday, Hong Kong SFC, you put out a consultation paper on virtual assets trading platform. They proposed to allow cotulla assets trading full retail customers. So I have two quick questions here related to these topic.
First one is with coinbase apply for these license or how coinbase, who approached us with Jim the second part.
Climate seems to be that the platform operator has told client money on a trust to a wholly owned subsidiary and no more than 2% of client virtual assets are stored in hot wallets.
Gen corn base be compliant with lease and.
Based on your knowledge, how many exchanges in the world can meet these hi, Bob Thank you.
Yes. So this is a this is a detailed question.
I would say that in general we don't currently have today, an entity in Hong Kong.
But I've been really.
Suddenly surprised to see that there is clarity like this this is a great example, what you just mentioned.
The financial hubs around the world of which Hong Kong is one of those are making really good progress towards regulatory clarity.
We'd have to look in detail to see if <unk> met those requirements and we don't have we don't have currently anything that we've done in that country to date, but.
I think it's exciting as a general trend I don't know Paul or anybody else you want add anything.
Other things I would add is we do have a practice of holding the vast majority of funds on our platform in cold storage and so we do have mechanisms in place to keep a very small amount of assets in a hot wallet are subject to cyber risk, which is one of the requirements. I also think that claim is to operate the trustco for a number of years.
And so there's definitely parts of our business that we could lean on if we chose to build in that market. Our broad international strategy as we outlined in previous years and we have a go broaden go deep at this point in time, we don't have any announcements on adding additional countries to our portfolio. We're focused on building in the countries that are currently in.
But conditions like you provided having clear regulatory structure, our markets have become attractive to us. So at the time that we were adding new countries to our list. We would look at that as a positive indicator of a country that we can go into and assess our ability to comply with those standards.
Got it thank you very much.
Yes.
Okay.
Your next question comes from the line of Devin Ryan of JMP Securities.
Hi, This is Michael Falco actually standing in for Kevin.
I wanted to ask a quick question you highlighted your goal for 2023 is to improve full year adjusted EBITDA in absolute dollar terms versus 2022, and then that you are setting your sights on positioning the company to generate adjusted EBITDA in all market conditions. So it seems like after the current 25% plus expense reduction you believe this is a reasonable goal just curious.
On the revenue side of the equation what are the revenue scenarios kind of underpinning that and what's the revenue threshold that would make that goal achievable.
Great question, so as we shared in our outlook, we're really focusing our near term outlook on things that we can control. So our subscription services revenue. We believe can grow 300 to 325 million in Q1, which is healthy growth off of the reported results. In Q4, we've also seen a lot of volatility in our <unk>.
Transaction revenues and we continue to see volatility.
We saw that crypto market cap is up 40% quarter to date in Q1.
Transaction revenue to be volatile it could be uptick could be down it can be static over the year. We are preparing for that range and we are preparing to grow subscription and services against this more moderate expense base.
There are scenarios that we could be EBITDA positive this year, but the goal because we are preparing for the worst and hoping for the best is to ensure that we improve EBITDA year over year.
And that is what we're sitting at a point in time, we will have we will continue to update you as we get more data points as we go through the year.
Great. Thank you.
Okay.
Your next question comes from the line of Kenneth Worthington of JP Morgan Securities.
Hi, good afternoon. Thanks for taking the question maybe for Bryan claim basis, historically been a large investor in crypto businesses in technology.
Based on the number of developers innovation continues at a robust pace in the crypto our ecosystem.
The industry has had a big leap forward with the development of <unk> and the popularity and use cases for NFC for example.
As you look to 2023 and 2024 are there use cases or developments.
On the level of Defier, NFL step, particularly excite you and maybe broadly what do you see as the next big leg forward.
For use cases in crypto.
Yeah, well OK. So you always have to be a little careful when here trying to predict the future, especially if it influences anything.
On the M&A front, so let me keep my comments, it's pretty broad here.
But you are correct, we have been investors in this space I think we recognize that this is the beginning of a big trend in big industry.
We're going to build our own products, we're going to also buy other companies, but we're also going to invest and so we do all three build buy and invest.
You mentioned some of these.
Some of these areas that got popular in prior down cycles, we had <unk> and things like that which were exciting in ftes.
A couple of areas that we're excited about just kind of looking forward I think.
Decentralized identity is exciting it allows.
Crypto to move beyond just a new form of money or new types of financial services, but also it allows the beginnings of a new type of App platform right and if you have.
A decentralized identity, where people can kind of have access to their own information. It's not owned by one of the Big Tech companies. Then you can start to do interesting things like create a social graph between those identities have decentralized social networks you can even have.
Reputation associated with those decentralized identity is kind of like a FICO score if you will.
Or something similar to Google page rank algorithm.
Which ranked different pages on the internet, but you could sort of have a reputation for each of these decentralized identities.
So that's one area just among many that that I'm interested in.
And we generally try to look at the landscape of startups that are coming out there are a lot of developers as you mentioned operating in this space now that that has actually continued to grow even in the market coming down.
If you look at where the brightest young engineers are focusing their time on the weekend, what theyre hacking on in their free time, I think that's a really good predictor of the future and so by that measure crypto is doing quite well.
Okay. Thank you if I can sneak in another one just quickly for Paul the SEC, our SEC Chair Gensler continues to say that he wants to crypto firms and crypto products to register with the SEC.
What is the risk to claim base or the downside of registering either firm or the products with the SEC.
Well currently it's certainly familiar with registration with the SEC and then of course, there's a publicly listed company. We were required to complete an S. One back in April of 2021, we're also quite familiar with the chairs comments regarding registration of individual products and services.
To the extent that registration is appropriate because first and foremost products and services qualifying securities under the federal Securities laws Coinbase.
Is quite open and eager.
To seek a path to registration where one is being available I think it's fair to say that at this point in time.
Path to registration for products and services that may qualify as securities has not been open for at least readily or easily openness, that's proven to be challenging, but we're always eager to pursue a registration where it makes sense and we will continue to engage in conversation and dialogue, where we have a well where we have an opportunity to do so with the SEC.
<unk> or anybody else.
Okay, great. Thank you.
Your next question comes from Lisa Ellis SBB Moffett Nathanson.
Terrific. Thanks for taking my question a follow up there on the regulatory front I know you.
And policy front, I guess more broadly.
<unk> highlighted several times that you expect 2023 could be a significant year for crypto policy Theres a lot of moving pieces here for us. So so in your view overall, what are the top three or four things that would constitute a win on the policy of regulatory front over the next year.
Yeah, well I want to temper expectations, a little bit I think anytime new legislation gets passed its kind of a lot of stars have to align for that to happen.
For good reason.
At least in the United States government. So we're going to keep pushing on that I Wouldnt. We don't know exactly what the chances are of that happening specifically this year, but I think over time the chances are quite good.
There's a number of different areas that people are looking at I mean, one of them is simply on the stable coin fronts and I think there is generally pretty broad consensus amongst.
Congress the folks that I've spoken with that we do we do want to bring that into the regulatory perimeter and some new legislation that just had some good best practices around.
Making sure that funds were audited think we're back to one to one that would be a great win we could see some progress there.
I think the other one is really around.
How to carve up the territory between CPUC and SEC, what are what's a crypto commodity what's a crypto security what is something else entirely like a stable coin or artwork like enough to use and I think we could use sort.
Sort of an updated definition of how we test which was created before computers even existed back in the 19 thirties.
And really kind of clarify how does this apply to digital assets I think that would be another core piece.
And then there's a number of other rules there that I think just again apply the best practices from traditional financial services around let's have a great anti money laundering program and get rid of any kind of wash trading in.
Reasonable kind of KFC procedures and things like that so.
Those are a couple of things that I think would help and then if we get all of that stuff. Working then we could probably think about how <unk> could fit in the regulatory perimeter or not.
And so these are all different areas that could be looked at but probably stable coins and some of those early things would be the first ones that get looked at.
Paul or anybody else want to add anything.
The only thing I would add Brian is that.
Back in July of last year as mentioned earlier, we did file a petition for rule, making with the SEC the outlined dozens and dozens something like more than 50 questions that need to be answered in order to bring regulatory clarity to the digital asset space. We think an excellent start would be.
She ate rulemaking as we requested not just coinbase, but everyone in the industry and frankly anyone with an interest in digital assets and have an opportunity to provide input to the commission and help the commission achieve the right balance between protecting consumers and investors on the one hand and promoting innovation on the other.
Your next question comes from the line of Pete Christiansen of Citi.
Okay.
Okay.
Your line is open.
I'm sorry can you hear me.
Hello, Yes, we can hear you now.
Okay.
Okay.
That's helpful.
Okay.
Okay.
Just remind us how you're thinking about.
Monetization.
Primarily.
And then I just have a quick follow up.
So sorry, you cut in and out we heard a question on monetization, but we couldnt identify which product.
Okay.
Is that better sorry.
If you could just take us through the integration with Aladdin and how we should think about monetization progressing there is that going to be primarily to custody.
Oh I'm sorry, Thank you for clarifying your question. So we don't have material update on the integration with Aladdin as we announced we are now in a bit on the backend, but the monetization is going to be that customers, who have Aladdin can also onboard into clean basis. So we're hopeful that what this does is puts crypto side by side with other stocks bonds are tradeable.
Assets of hedge funds and asset managers and it enables them to risk manage the op have operational control to measure encrypted that they put in the other asset classes and so those customers, but also onboard onto coinbase and trade on our products and services and monetize on our platform.
And then there is going to be obviously, some sort of <unk>.
Flipping that between us and Blackrock that we haven't provided public information on at this time.
That's helpful and then so then finally Brian .
I would I would love to hear your take on kind of like the pulse right now at the company.
Now on your second restructuring obviously.
It's just been a lot of volatility all around just wondering if you could comment.
Basically on the pulse of Av.
And your people there perhaps.
Okay.
The sense of.
Ill.
Player engagement is faring under under these conditions.
Yes, I can touch on that just briefly.
I think actually overall engagement is pretty good.
We have a lot of people who are really just passionate about the mission.
And they want to see this happen in the world and so some of them have been through crypto cycles before I mean. This is this was the fourth one I've been through but many of the people at the company has gone through crypto cycles before there.
Theyre relatively unfazed by it at all.
People, who maybe it was their first time going through something like this it's a little scary, but they've seen when people were irrationally exuberant and when people had to say about crypto in the past.
They've kept building and I think what people ended up realizing was that actually in the down cycles that sometimes better you've come to you've come to appreciate the down cycles because.
There's less noise.
The people who are in it for the wrong reasons kind of wash out and the people who are true builders in the space kind of has some time to get some real work done so a lot of the best innovation actually happens in down markets.
That's helpful. Thank you.
Thank you, okay, well we're at.
We're at time for today's call. So thank you for joining us and we look forward to speaking to you again on our next call.
Thank you. This concludes today's call you may now disconnect.
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