Aug 4, 2023

Coinbase beat analyst estimates for the second quarter, reporting revenue of $708 million and a narrower-than-expected loss of $0.42 a share.

Video transcript

So it wasn't just a jobs report. It's also coin based earnings that have come out. The crypto exchange beach analyst estimates for the second quarter reporting revenue of $708 million and a narrower than expected loss of 42 cents per share. Coin based shares have risen roughly 15% in the past month. Joining us now to discuss is over senior analyst with Oppenheimer, a global full service brokerage and investment bank. Welcome. Thank you for having me. It's our pleasure. All right. So your takeaways, you know, because the crypto exchange, uh it just beat on both the top and bottom lines but transaction revenue and total trading volume fell. So what's your take? So I think overall in summary, it was a better than fifth quarter. We had expected trading volume revenue and adjusted to decline quarter for quarter sequentially from one quarter, from the first quarter to the second quarter. It turned out that they came in both bottom line and top line came in better than expected. So I would say it's a better than fear quarter. But the interesting part of this quarter is the stock had a great run already, the stock went up by over 65% since the mid of June. So that's why you see a pretty mixed signal after the print, the stock gone up by 9% at one point and then went down 2% and then went up and then went down and now I think it's down a little bit. So that's why you see some volatility here. So, uh as you know, the uh the expected growth of revenue will probably happen not in transactions, but in other fees. And, and we've seen interest rates go up that tends to be good for banks and financial service companies. They earn more interest. Uh How much of coin base business now will be a, do you think will be basically holding on to cash and, and, and earning that interest? Uh What is essentially the core business? The transaction fees? Yeah. So in the second quarter, the so-called non transaction revenue is about 47%. So quite half of coin based total revenue is non transaction and the point you you make was about the stable coin us DC coin base as a revenue sharing agreement with, with circle. So on that they generally about, I want, I want to say about 20 to 30% of uh of coin base going forward. It really depends on the market cycle I would expect in a down in the bear market, the S and S the transaction, the subscription revenue would account for about 50% of total revenue. But in a good bull market, that percentage can, can come down. So I to that idea of the, of a, of a uh boom market though, you, you say that one of the catalysts, at least a potential catalyst here increased uh increased offerings in terms of uh you know, more cryptocurrencies. Yet they're, they're facing huge regulatory issues now. Uh with the SEC basically saying, stop selling anything that's not Bitcoin, stop being in the market of anything that's basically not Bitcoin. Um How real of a threat is that? I mean, when you have the biggest regulator in the United States for securities, the only regulator basically, uh federally saying we're not pleased with you guys selling things that aren't Bitcoin. Uh How do you grow your business? So I think at this 0.1 of the biggest driver is still higher Bitcoin price and also adoption. So what the community needs to do is to attract more people coming back to this industry so that we, we, we hope to see higher trading volume in all tokens. So it's not just about Bitcoin, not just about Ether or any other coin. So we need to see increased adoption in both retail and institutional. The more token point you just mentioned, I think one example is so they kind of like had the partial win, you can debate whether it's a big win or a small win. But a coin base did release XRP after that summary judgment. So I think that would help a little bit of revenue, not a lot. But if we see more cases like this, if we see more clarity like this, I think there will be more tokens coming back to the system and that could grow the camp going forward. Yeah, we just want to play something for you right now because we're talking about Coinbase and, and SEC basically, we do know that uh in the last few hours, Coinbase has filed for judgment in its ongoing case against the SEC alleging that the regulator is stepping well outside its jurisdiction. Something they've been saying for a while in suing the crypto exchange. Coinbase is Chief Legal Officer Paul Gray. He weighed in on the exchange battle with the regulator just last night. Take a listen with respect to the litigation with the SEC. I want to be very clear. We do think we can win. Um We expect to win, but it's important to understand that our goal um across not just the litigation but all of our efforts um engaging with the SEC and engaging with the US government as a whole is to achieve regulatory clarity, to protect consumers, promote innovation and essentially establish clear rules of the road that everyone can understand and follow. All right. So, you know, we are hearing the confidence in their voice. They are asking the the courts for a clear judgment. They're talking about the ripple case. There was another judge who said, well, I don't quite agree with what happened in the ripple case. Um, at the end of the day, the market sentiment seems to suggest that for the first time there's been some positive news in this space and therefore we are going to continue to think it's positive. Is that, is that something that they should continue to do in the long run? Given the S ECs position doesn't seem to be officially changing any time soon. Yeah, I think you raise a very important point. I think sometimes I do feel like the market is ahead a little bit of itself after the case. I think many tokens and coin base went up quite a lot and the the case will point out from the terraform case that judge actually make it very clear that he rejected what Judge Torres used in, in, in the ripple case. So I do feel feel like there's a mixed signal coming out from the court. Um I, but at the same time, I do think for non fraudulent case, the summary judgment from Judge Torres would carry a lot more weight on that. So that's just my opinion. And so that's why we need to have the rule clear rule coming out from the Congress as soon as possible. So at the end of the day, I applaud what the House Financial Services Committee and the Act Committee did last week, they vote to advance the bill and have the full vote hopefully later this year and then we can go to the Senate and signed by the President. So I think that's the path we need to see and that's the path we need to hope for. But at the end of the day, there's still uncertainty. So, uh II, I gotta ask about base because there was, uh, of course, the, this whole thing, the rug pull uh uh when it came to uh bald, which uh II, I think people assume to be uh a dig at Brian Armstrong. Um And it was kind of a, a I would say an embarrassing situation for uh coin base as it, as it tries to roll out uh the, the, this uh uh this thing built off of optimism. So um that how bad of a, of a black eye is it when uh when, when a rug pull like that happens even even so early. Uh I think it, even before it was uh officially launched. Yeah, I mean, it doesn't look good for the initial launch. And, but again, like this is still in early days, um it's hard to prevent this, especially this new technology. So I think what we need to keep in mind that we just need to be careful and, and at the same time, be diligent vigilant about this technology. So I, I would say longer term, I I, I'm still have some, I still have some confidence in base what they're trying to do. It's not about revenue in the near term. It's more about getting people to adopt. Um, and, and, and getting people into the ecosystem. So over the long term, I'm still confident what they are doing, but how can they overcome this? Uh Oh, I'm sorry. That's ok. Yeah, I, I, it's, I think it takes time so it's not like, you know, they can fix it tomorrow. I think it takes time. We we can, I think we should monitor what they have been doing to, to kind of like police or, or get the things right in this situation. But I think at the end of the day, I think give them some time, we keep monitoring them, we keep giving them feedback and hopefully we can get these things, right? OK. We have two very short questions for you and I appreciate the shortest answers possible. Of course, uh during the earnings call, you asked for more details on the traction for Coinbase International Exchange and what the next steps are. I'm interested in that because what's happened is there was a recent article that revealed, you know, the activity of Binance in China was huge and uh we don't know what's happening with Coinbase internationally in that context. So how did Brian Armstrong respond to your question? And were you satisfied with the answer? So I think again, like this is still in early days. I know that they are not going to expand into all geo geography. It's because of some like licensing concern. What I can say right now is I think they are moving into the right direction and it takes time for them to scale and build up this international exchange. All right. OK. We appreciate that. OK. A final question. Addressing the elephant in the room, you have uh an entity called uh Oppenheimer. Uh There's got to be some activity happening for you guys. Uh You know, just marketing happening quite naturally because of this film. Oppenheimer. Can you tell us a little bit about that? What's happening? Like you mean, like what conferences we are doing or what kind of, I don't know the film called the I, I haven't seen it so I can, I got you guys haven't got any business uh any, any uh contact from Barbie. I don't think so. OK. All right. Like no comments. Thank you very much. No. OK. We knew there was no comment coming. Thanks so much for that. Owen. It's been a pleasure. That was Oppenheimer, senior analyst. Lau. Thanks for coming.

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