What does this boil down to? I had three main takeaways and questions - Trading Take Rate, Users, and 2021 Projections.
Trading Take Rate
We are only provided total revenue of $1.8B. If you arbitrarily take this and $335M volume, you would get an impressive ~54 bps as Q1’s take rate. Huzzah! Does that definitively mean that the take rate remained high because retail users came in force? No.
There are 3 lines of revenue - Transactional, Subscription, and Other. Note, “Net Revenue” is considered Transactional and Subscription. However, these all have different drivers.
Source: S-1 Filing
Source: S-1 Filing
Transactional Revenue is based off of trading volume, which is largely driven by volatility.
Subscription Revenue is custody, staking fees, etc so it is largely driven by AUM.
Other Revenue is when they sell their treasury of BTC, ETH, etc.
Source: S-1 Filing
So, you should only be calculating a ratio of trading volume to transactional revenue. For 2020 this was 86% of total revenue, but we do not yet have that detail here to definitively say how much of total revenue was actually transactional.
An example - Assets on Platform (AoP) grew from $90M Q4 to $223B Q1. People may have bought 2Qs ago and keep AoP. With rising asset prices, CB may earn more revenue off of them, but this revenue has nothing to do with this Q’s trading volume.
Where does that leave us with scenarios for the Q1 revenue? Several possibilities…
Scenario A) They actually did have massive Transactional Revenue that made up the majority of the $1.8B revenue. The high take rate would imply that retail users came in droves and were using the mobile app that carries higher fees
Scenario B) They’re getting more revenue from Subscription Revenue due to higher AUM
Scenario C) They sneakily sold off more assets in Other Revenue to put total revenue ahead of their IPO (they’d get called out eventually on this so I doubt it)
User metrics
User metrics were another win. 56M verified users puts Coinbase far ahead of Robinhood, CashApp, and Venmo. But it was also exciting to see the growth trends of VUs and MTUs side by side. MTU growth QoQ strongly outstripped VU growth, which could indicate that Coinbase is successfully resurrecting inactive users.
Source: Data from S-1 Filing and 8K Filing
2021 Revenue Guidance
Trading volume is correlated with volatility, which is inherently unpredictable. Coinbase works around this by calculating retail net revenue by MTU x ARPU (Avg Net Revenue per User).
Coinbase gave an upside / base / downside case for their avg annual MTU of 7M, 5.5M, 4M. They noted that they had avg ARPU of $45 in 2020, but did not list ARPUs with each scenario.
It is pretty clear they are playing the game every company plays with projections. Aggressively haircut, then smash through when they report earnings. I.e. I find it doubtful they actually think their base case is 5.5M MTU when they just reported 6.1M in Q1.
This is what they *could* have projected for retail revenue for 2021. This feels low given Q1. But we don’t have revenue details yet and they *want* to blow out any projections given.
Source: Data from 8-K Filing
If the bull market continues, then MTUs will be significantly higher than what they’ve outlined, even in their upside case. And if MTUs increase, then ARPU will rise correspondingly…2021 could get very interesting, very quickly for Coinbase.
