Circle’s Stock Decline Despite Positive Quarterly Performance
The issuer of the stablecoin USDC, Circle, saw its stock price drop over 6% the day after announcing a positive quarterly performance report. According to the financial report, the circulating supply of USDC grew by 90% year-on-year, reaching $61.3 billion; the company’s total revenue and reserve income grew by 53%, totaling $658 million.
Despite strong fundamentals, the stock performance was poor. The equity research team at Mizuho Securities pointed out that the signs of a “pullback” in Circle’s stock price could be attributed to three potential reasons.
First, the gap between the “ideal” and “reality” of USDC’s issuance scale continues to widen. Although driven by the increased activity in the cryptocurrency market, USDC has grown 6% year-to-date (QTD) this season, which is still below the company’s target long-term annual compound growth rate of 40%.
Second, distribution costs have been rising continuously, increasing from 39% of the reserve pool in 2022 to 61% in 2024, with Q2 of this year reaching 64%, putting increasing pressure on Circle’s profit margins. Analysts believe that with the market opening and intensified competition brought by the GENIUS Act, the situation may worsen further. Several large institutions have expressed their intention to issue or introduce stablecoins, while Circle’s biggest competitor, Tether, is also planning a return to the U.S. market.
Finally, analysts noted that “while inflation cooling is favorable for the economy, it is bad news for CRCL.” The U.S. Department of Labor announced on Tuesday that the Consumer Price Index (CPI) for July rose 2.7% year-on-year, slightly below expectations, leading the market to raise expectations for Federal Reserve rate cuts. However, Circle benefits from a high-interest-rate environment, and any rate cuts would directly undermine its profitability.
Mizuho Securities stated in a report to its clients that due to CRCL’s heavy reliance on a single macro factor (U.S. Treasury rates) and the risk that USDC’s issuance scale may fall short of expectations, their forecast for the company’s 2027 EBITDA is below market consensus. They assigned an average market price-to-earnings multiple (with peers like Visa, Coinbase, and Robinhood currently around 23 times EBITDA), resulting in a target price of $84. Their pessimistic scenario assumes that USDC will only grow at an annual compound growth rate of 15% until 2027, coupled with declining interest rates, which could see the stock price fall to $40.
