Stablecoin issuer and blockchain application company Circle Internet Group, Inc. posted positive third quarter earnings on Wednesday, but analysts are split on whether the company’s single-stream revenue and plans for mainstream integration are working out.
In the last quarter, Circle launched its own blockchain network, mulled the idea of reversible transactions and sat in on roundtables with traditional finance institutions – all with the goal of growing its stablecoin USDC through big banks and payment companies. While USDC growth is on the rise, analysts disagree on whether Circle should look to broaden its revenue streams, or if their long-term plan to grow its stablecoin through traditional finance is enough.
On its earnings call Wednesday, analysts pressed executives on how Circle was planning to expand monetization. “[We’re] not just adding markets for the sake of saying, ‘Hey, we can flow money here and there,’” said Circle CEO and co-founder Jeremy Allaire. “But adding quality participants” with good business, enterprise and consumer outreach.
Overall, Circle’s revenue and reserve income hit $740 million in quarter three, growing 66% year-over-year and beating out analyst expectations by nearly $35 million. Earnings per share of Circle also hit $0.64, beating analysts’ expected $0.20. Despite this, shares of Circle fell 8% Wednesday to $86.30, their lowest close since their first day of trading in early June.
The company’s reserve revenue (income made off the U.S. short-term Treasuries holdings that back USDC’s dollar peg) reached $711 million in quarter three, making up 96% of total revenue for the quarter. From quarter two to quarter three, Circle’s other revenue, like subscriptions and services, only grew from $24 million to $29 million.
“While these businesses can help diversify the earnings longer term, neither have enough scale to generate more than $1m of annual revenue today” should the company incur fees, wrote Compass Point analysts Ed Engel and Michael Donovan of Circle’s other revenue streams.
The analysts reduced Compass Point’s price target on Circle shares to $75 down from $92 and reiterated their “sell” rating, citing “limited diversification” in other revenue, amongst other things in their post-earnings research report.
In September, Circle launched Arc, a blockchain that aims to provide fast, reliable and safe ways for financial institutions to implement USDC. Circle’s net income in the third quarter tripled year-over-year to $214 million. Over the same period, adjusted operating expenses, which include costs of Arc and other services like Circle Payments Network (CPN), almost doubled to $211 million from $124 million.
“They were supposed to invent this sort of ecosystem around stablecoins, but it’s not happening,” said Dan Dolev, senior financial technology research analyst at Mizuho Securities. At the time of its initial public offering, Dolev called Circle’s business model “silly.” Mizuho initiated coverage of Circle a little over a month after its IPO with a price target of $84, implying a downside of roughly 63% at the time. They have since maintained an “underperform” rating on Circle.
USDC in circulation reached $73.7 billion by third quarter-end – more than double the amount in circulation this time last year. Since its IPO, USDC market capitalization has grown 25% (data on stablecoin growth is available to the public and is updated daily, not limited to earnings reports). To Compass Point and Mizuho, this growth isn’t strong enough to justify its majority single-stream revenue.
Others disagree.
JPMorgan analyst Kenneth Worthington upgraded his price target for Circle shares to $100.00 from $94.00 and double-upgraded the stock to “overweight” from “underweight.”
“Stablecoins are continuing to make their way into mainstream financial services, with USDC a leading stablecoin and Circle a leading partner,” Worthington wrote of JPMorgan’s upgrade.
Joseph Vafi, senior financial technology and digital assets analyst at Canaccord Genuity (which co-managed Circle’s IPO launch), said it’s unrealistic to expect extreme growth in the same quarter a technology like Arc was launched.
“You can’t change the banking system over night. It’s no surprise that these things are still emerging,” said Vafi.
Circle raised its non-reserve revenue guidance to $95 million from $80 million for 2025. They also foresee $495 million to $510 million in adjusted operating expenses for this year, an increase from prior guidance of $475 million to $490 million.
On the earnings call, CFO Jeremy Fox-Green said Circle was “not focused on monetizing” services like CPN. He added, “We want the network to grow so that it’s creating value for all participants in an increasing way, and that’s how networks grow and become valuable.”