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For Coinbase, our institutional volumes outperformed this broader market, and our retail volumes performed in line with the industry. | positive |
Next, I want to share a bit of color on our retail transaction piece because I know you all watch this closely. | neutral |
As you'll see through our disclosures, the blended average fee rates were lower in Q3 versus Q2 for our retail business. | negative |
We want to be clear, there was no change to our retail transaction fee rate in the quarter. | neutral |
The decline that you see is the result of math. | neutral |
It is a result of the fact that in lower volatility periods, we see our low dollar volume traders become less active. | negative |
We've seen this transaction reverse in October as customers have been very active on Coinbase given the change in crypto prices and volatility that we've seen in October. | positive |
And our blended average retail fees were higher in October. | positive |
So I want to share with you again, this is just an outcome of activity on our platform and that there's no underlying change to the fee rates. | neutral |
Three other important trends I want to call out. | neutral |
First, our focus on asset addition is paying off. | positive |
We told you before we want to be the Amazon of assets. | neutral |
And today, we see 59% of our trading volume in Q3 coming from other crypto assets. | positive |
We don't know precisely which assets customers are going to adopt. | negative |
So our strategy of wanting to support all legal assets will give our customers the broadest and safest choices to do so. | neutral |
Second, our customers are deepening their engagement with our product suite. | positive |
28% of our retail MTUs that invested also engaged with a second product on Coinbase in the quarter. | positive |
And 49%, nearly 50%, of our MTUs are engaging with noninvesting products overall. | positive |
We see this as a great indication that we're moving to the utility phase of crypto. | positive |
Third, our subscription and services revenue was strong at $145 million. | positive |
We are pleased to see this growth despite the impact of volatility on the transaction revenue. | positive |
And again, this is just an encouraging sign that crypto is increasingly moving to utility, particularly with use cases around yield and rewards. | positive |
In our shareholder letter, we noted that Q4 is off to a strong start. | positive |
Volatility and crypto prices both increased in October, which has resulted in October monthly transacting users of 11.7 million and October trading volume of $186 billion. | positive |
Additionally, as I mentioned before, we've seen an increase in retail fee rates in the month of October. | positive |
As a result of this strength, we've increased our MTU scenarios for full year 2021. | positive |
Our low is now 8 million MTUs, which is the average over the course of 2021; and our high is 8.5 million, as outlined in our letter. | neutral |
We also shared that we anticipate our 2021 annual average debt transaction revenue per month will be in the high $50. | positive |
On the expense side, our updated outlook reflects our strengthening view of Q4, including transaction expenses in the mid-teens as a percent of our revenue. | positive |
Sales and marketing will be higher compared to Q3 as we ramp up our brand investments. | neutral |
And our tech and dev and G&A spend should come in, in the neighborhood of $1.4 billion combined. | neutral |
It's important to note that, that excludes, i.e., does not include, the stock-based compensation. | neutral |
With that, I'll turn it back to Anil to get started with Q&A. | neutral |
Before getting into Q&A, I wanted to clearly lay out some principles for our Q&A session today. | neutral |
First, we will answer the most up-voted questions determined by a number of shares and may group questions together that touch on the same themes. | neutral |
Second, we don't plan to answer questions related to the potential listing of new assets. | neutral |
And third, we will avoid questions we've answered in the past, if there are no updates. | neutral |
For example, we still don't plan to issue a dividend. | neutral |
So our first question is from [Sylvie P. and Jason M.]. | neutral |
They asked about Coinbase Ventures. | neutral |
Can you talk a bit about our venture strategy and investment process? | neutral |
And maybe highlight 1 or 2 investments you're particularly excited about. | neutral |
Can you walk us through the capital allocation strategy and how these investments are captured in our financials? | neutral |
This is Emilie Choi, President and COO. | neutral |
So we're very pleased with the progress of Coinbase Ventures. | positive |
We launched it in 2018, primarily with the mandate to support the growing crypto ecosystem, and we have become one of the most active corporate investors with more than 200 portfolio companies at this point. | positive |
One of the questions was about the ones we're most excited about. | neutral |
And we look at it as thematically what is really interesting and popping and what teams and technologies are really interesting. | neutral |
So this includes everything from OpenSea, which we invested in their seed round in 2018 because we thought NFTs was going to be interesting; TaxBit and CoinTracker because taxes are so important in crypto; BlockFi for lending; Uniswap for decentralized exchanges; and then CoinSwitch because we think India and international are such important themes. | neutral |
And that's the way we think about the portfolio. | neutral |
We really look at interesting themes and then try to find the best teams and technologies in the space. | neutral |
And as I mentioned, we want to support the ecosystem because it helps support and grow those companies, and it also helps us get differentiated insights about what's popping. | positive |
A secondary goal for us is about M&A pipeline and/or partnerships. | neutral |
So for example, Bison Trails is a company that we invested in with the Coinbase Ventures company. | neutral |
And it has now been acquired by us and forms the basis for Coinbase Cloud. | positive |
Another example of this on the partnership side is that we invested in Compound before partnering to support their Day 1 listing for custody and trading. | positive |
So we think there's a lot of different ways that we can work with these companies across the spectrum of partnership to acquisition. | neutral |
And then finally, we also do care about ROI, and we think that we'll be showing strong returns in coming quarters around that, but that's kind of a secondary goal for us. | neutral |
So the only thing I'll say on this is just that we've been spending a lot of time as of late working with protocols, Web3 infrastructure, DeFi, CeFi and, of course, NFTs and the Metaverse. | neutral |
And we think there's just an abundance of innovation in this space, and we want to keep doubling-down on those opportunities. | positive |
Alesia, do you want to talk about the financial part of this? | neutral |
So first part of the question, how do we think about our capital allocation framework? | neutral |
And here, I would say there's no hard and fast rules. | neutral |
When we look at our overall balance sheet, we allocate capital to 4 different use cases: one is just to working capital; two is to product support and strategic initiatives, of which venture investments and strategic investments fall into that bucket; third is to any potential risks that we may have that we want to self-insure; and then lastly is the ability to be able to fund our business through our crypto winter. | neutral |
So this capital allocation is a constant discussion between Emilie, Brian and I about what is the best and highest use of our resources, but it's a very important area that we allocate capacity to. | neutral |
We hold our strategic investments on our balance sheet under other noncurrent assets, and you can see those in our financial disclosures, in our 10-Q and 10-K. | neutral |
The majority are equity investments, which we hold less than 10%. | neutral |
These are minority passive investments. | neutral |
We acquire at cost and test for impairments on a regular basis. | neutral |
They could be subsequently written up. | neutral |
This is very rare because the accounting rules for when we actually write up an investment are very precise. | neutral |
It has to be an identical transaction. | neutral |
And what we typically see in these investments is they have subsequent rounds that are not identical investments. | neutral |
And so you will see us typically carrying these at cost. | negative |
There could be a significant delta between the fair market value of these investments and the carrying value reflected on our books. | negative |
We look forward in the future to producing more disclosure and giving you more insights into this portfolio and may disclose fair market value at a future time. | neutral |
So next, we received several questions about NFTs. | neutral |
[Sylvie P. and Stephen B.] asked if we can talk about the recent announcement of the coin-based NFT platform and the overall strategy there. | neutral |
What are your plans for international expansion of the NFT platform and cross-platform usability. | neutral |
Devin Ryan from JMP Securities asked about the social component of NFTs, and Rich Repetto from Piper Sandler asked about the timing of when we will launch our marketplace. | neutral |
So we're very excited about NFTs. | positive |
I think this is going to be a very large area for crypto in the future, and it already is today. | positive |
I mean traditionally, Coinbase is focused on FTs, fungible tokens, and we're equally excited about NFTs. | positive |
I think it could be as big or bigger. | positive |
So let me just zoom out for a minute because, of course, we launched Coinbase NFT, or we announced that we'll be launching it, in the next quarter or 2. And so Coinbase is a multiproduct company. | positive |
We have an effort internally we call Project 10%, which basically means that we put 10% of our resources towards these new initiatives that are kind of outside of our core competency. | neutral |
And you've seen things like Coinbase Wallet and Coinbase Commerce, the direct deposit feature that we announced. | neutral |
And this NFT all came out of that. | neutral |
So this NFT product that we've talked about is really just a small team's effort that started just a handful of months ago. | neutral |
So there was a question there about the social experience. | neutral |
And I think that's something that Coinbase can bring to the table here. | neutral |
We'd like to make Coinbase NFT a little bit more like Instagram as opposed to, say, an auction like eBay or something like that. | neutral |
And I think having people that you can follow, your favorite artists or creators, and having a feed of content that gets populated from those people you follow, that could be really powerful. | neutral |
And in addition, you can go in there and buy an NFT if you really like it and you'll kind of showcase in your own social profile. | neutral |
In addition to that, I think we can just make hopefully NFTs much easier to use. | positive |
That's kind of a hallmark of what Coinbase tries to do out there: to bring more and more people into the crypto space. | neutral |
So just simple things like how do you connect your wallet. | neutral |
Hopefully, you won't have to install a Chrome extension. | neutral |
And if your identity and your payment methods and everything are just already connected from your Coinbase account, buying could be hopefully a one-click experience. | neutral |
So I think this is going to be a global phenomenon. | positive |