Thread by @ramahluwalia

Coinbase Q3 earnings are out!

Here's a thread with highlights on the business, product, notable customer wins, and some pretty charts.

I also discuss how Coinbase is betting big on Web3 - this is the proverbial hockey puck Coinbase is skating towards.

Thread...

Revenues (miss, but up massive YoY): Coinbase revenues for Q3 were $1.2 Bn vs. expectations of $1.8 Bn. Revenues up 4.3x YOY.

User engagement (mixed): Monthly Transacting Users ('MTUs') were 7.4 MM down 16% from a peak of 8.8 MM MTUs last qtr. Still, up 3.5x YoY

One takeaway, like many exchanges, Coinbase benefits from heightened market volatility. Q2 had peak activity - also coincided with May crypto crash.

Subscription revenues up 41% YoY on a small base of $145 MM. Would not be surprised to see a continued transition from volatile transaction revenue to value-based recurring revenue. Higher quality SaaS revenue will help smoothen earnings and strengthen the multiple

Coinbase disclosed at least one big logo joined the platform: Pimco. Also, some less familiar names - Marex Solutions and Prosegur.

On Product - Coinbase's stated strategy is to "list all legal assets". 103 assets are now supported for trading; 30 new tokens added this past quarter

Coinbase is making significant investments in infrastructure and headcount. The focus is on web3: "We believe Web 3.0 represents a paradigm shift in how we all interact with the Internet which will unleash unprecedented innovation and economic freedom."

Coinbase Prime launched in mid Q3. More counterparties were added to the smart order router to improve liquidity. API and developer specs updated. No numbers yet on this business line, we'll stay tuned...

Coinbase Wallet - the wallet now has "deep linking" to the Consumer app. Over 2,000 apps supported. No numbers on the monthly actives here. This is a key area to watch. Non-custodial wallets have ~10 MM users and are a source of competition for Coinbase (Metamask, Rainbow, etc.).

Preview of Upcoming launches: NFT marketplace, Payroll & Expense reimbursement (should help @ericadamsfornyc goal to get paid in #Bitcoin), and retail trading

How are customer behaving? What are they trading? This is notable - Bitcoin share is declining; ETH is holding ground; "Other Crypto" is taking share from both. Other crypto - how much of that are the doggie coins?

Institutional trading volumes represented 72% of total trading. These volumes were down 26% vs Q2. However - retail customers represent 90% of revenue ($1 Bn+). Institutions generated ~$60 MM in quarterly revenue

What about Staking? Coinbase refers to this as "Blockchain Rewards". $82 MM - nearly a double from last Qtr. My guess is this revenue line-item goes up massively next year as node validation services mature and education around staking grows.

What about the custody business? Revenues were ~$32 MM up $5 MM from same time last year. As we've seen before, the primary money maker is transaction revenue.

Net Revenue per Retail MTU is $34 to $35. That's $420 a year. Combined with a high gross margin, that translates into a very attractive customer LTV. There's plenty of room to fund CAC.

However, MTUs declined despite new customer acquisition... With a nice LTV/CAC ratio - it seems like Coinbase is i) under investing in marketing, ii) or that the asset class has to go mainstream to unlock the next stage of user adoption (e.g., low hanging fruit picked).

To that end - I wouldn't be surprised if we see Superbowl or TV ads in the coming quarters...

Outlook? Coinbase brings it back to Web3. "We are excited by the promise of Web 3.0, which is ushering in a new Internet — one which is more open, where identity and payments are finally linked, and where builders do not need intermediaries..."

"We believe wallets and crypto assets will play a key role, as both payments and identity are intertwined." There's a lot here... imagine relying on Coinbase Wallet to authenticate and access services (as opposed to Google or Facebook SSO)

My read is that Coinbase wants the wallet to serve as the customer's gateway into the Web3 version of the internet. It's a far reaching and ambitious vision - analagous (sorta) to the role web browsers play in shaping user experience in Web 2.

But we're still in the infancy of the Web3 journey (can I haz my Web3 version of Gmail, Facebook, World of Warcraft plz!?).

By betting on web3 - Coinbase is drawing a sharp contrast vs. all the emerging competitors that are encroaching on Crypto (RobinHood, Square, Schwab, Fidelty, etc.).

Hope you enjoyed! What are your hot takes?