Coinbase isn't completely pumping the brakes on deal-making, but it is taking a more cautious approach as it continues to lower expenses.
Speaking at Oppenheimer's 26th Annual Technology, Media, Internet & Communications Conference, Coinbase chief financial officer Alesia Haas described the firm's non-organic growth strategy as being "opportunistic."
"For us, for M&A, we are looking for unique new skills — whether it's adding talent, whether it's adding a new product line like as management or just adding key talent," Haas, who joined the company in 2018 from the hedge fund world, said. "And so M&A will always be part, but it's opportunistic."
"We have good pricing discipline and we want to make sure it's really additive to the business and that the market shifted," she added. "There's not — we haven't been as active this year as we have in past years, and we'll continue to manage that and see how that market evolves."
The firm acquired the asset management business One River Digital Asset Management in March, which was rebranded to Coinbase Asset Management. The business unit offers institutional clients exposure to the crypto market via "a suite of digital investment strategies" and indexes, per the deal's announcement. It operates as a wholly-owned subsidiary of Coinbase. Other recent acquisitions included Bison Trails in 2021 and derivatives exchange FairX in 2022.
Coinbase's opportunistic approach is a sign of the times. The deal-making environment has been sluggish thanks to the U.S. Federal Reserve's move to hike interest rates. As noted by Axios's Dan Primack, nearly every metric relevant to deal-making was down during the first half of 2023, with U.S. M&A declining 41% in terms of dollars and 5% in terms of the number of deals.
As for expenses, Haas said that the firm's "discipline" in cutting expenses has paid off, resulting in a more nimble and productive organization. Here's Haas:
We're also seeing good efficiency gains. And so I think that we're comfortable with this size. We want to make sure that we're much more thoughtful. And as Brian articulated on earlier calls and then we said to the market, we want to start building towards a company that can be profitable in all environments. And so there's discipline on the expense side, combined with the revenue diversification, we think, are critical parts of our journey.
The firm, which reported second-quarter earnings last week, has brought down its operating expenses a fair amount — reporting a 50% Y/Y decline in quarterly reoccurring operating expenses and adjusted EBITDA for Q2 of $194 million. The reduction in operating expenses reflects a decline in full-time employees from 4,977 in Q2 2022 to 3,406 in Q2 2023. Moreover, Coinbase reigned in spending across sales and marketing and research and development, declining 41% and 47% Y/Y, respectively.
"Had ambition to grow further. The market changed. We recognize that, and we needed to attack our cost base. And so we are really proud that we've cut operating expenses meaningfully year-over-year," Haas said.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.