Summary Circle Internet Group remains a Hold, with a revised fair entry price below $120, reflecting improved earnings outlook and stablecoin growth. Q2 2025 results showed strong revenue and volume growth, but reported losses were due to one-off IPO-related stock compensation expenses. CRCL's business model benefits from stablecoin adoption, earning interest on reserves, but faces headwinds from declining short-term interest rates. Despite Fed rate cuts, CRCL's expanding partnerships and blockchain initiatives support long-term growth, but valuation isn't so low to be discounted. Circle Internet Group ( CRCL ) is still a relatively new stock, after its IPO this spring. In that time, we've seen plenty of volatility as the market makes up its mind on fair value. CRCL Price History (Seeking Alpha) After going public in May at $30, the stock climbed to $263 in June. In more recent days, it's settled near $130, making its market cap approximately $29B. After making initial coverage in July, the price is down significantly, and I've had more to learn and consider about the stablecoin opportunity. I've raised my valuation, but I maintain my Hold rating. Summary of First Thesis My initial thesis was largely a validation of the business model and the value-add of their stablecoin product. By tokenizing fiat currency, they effectively reduce the cost of transaction services (typically something like 2%) to zero, with speed both domestically and across borders. Revenue and Volume (Screenshot of previous thesis) This is because they make revenue from short-term interest rates on the cash they hold while giving out their tokenized equivalents. As more people use stablecoins, the more cash they would have to earn interest, relatively free of risk. The main downside was the potential for this yield to decrease with Federal Reserve rate cuts, limiting their ability to benefit from volume growth and potentially making them cyclical with little upside left on the table. With the range of possibilities, I felt that a market cap closer to $20B ($43B at the time) would be a better entry, which came to $95. I rated it a Hold accordingly. Subsequent Updates Since I covered CRCL, Q2 2025 results have come out. The period showed strong, sequential growth. Q2 2025 Earnings Release Total revenue and reserve income reached $658M, up 13.6% from Q1. This largely resulted from growth in volume. Q2 2025 Company Presentation In spite of the growth, however, Circle did not record a profit for this quarter. Income Statement (Q2 2025 Form 10Q) Compensation expenses were unusually high in this quarter, at $503M. According to the latest Form 10Q , this was primarily due to a one-time instance of stock-based compensation expense that was realized in relation to the IPO. That impact to expenses was $423.8M. "Other (expense)" points to a $160M item as well. Cash Flow Statement (Q2 2025 Form 10Q) The cash flow statement indicates that most of this was due to a change in the fair value of other forms of the fully diluted equity, whose value would have been unlocked by the IPO and materialized as an expense. Without these items, Q2's net income was around breakeven. Cash Flow Statement (Q2 2025 Form 10Q) The year-to-date cash flow situation shows that it is overwhelmingly positive. If we count M&A, software development costs, and purchases of long-lived assets as capex for this type of software company, it's free cash flow of about $263M. Q2 2025 Company Presentation On the qualitative side, Circle expanded its operations a bit by introducing Arc, its own blockchain network. USCoin USD ( USDC-USD ) is the native gas token, effectively making the dollar the gas. This allows Circle's USDC token to compete with other USD stablecoins by having some extra utility. Q2 2025 Company Presentation Circle also began expanding its partnerships across distributors and merchants. Binance is a key relationship, as they are the largest crypto exchange. Coinbase ( COIN ), which I discussed last time as an important ally for Circle, is a big exchange in their own right, but Binance has almost eight times the volume of Coinbase. Outlook and Valuation Circle isn't a terribly complicated business. It mints stablecoin and earns interest on the real cash it receives for it. They would have to introduce entirely new products with the same ambition as their stablecoin for the earnings outlook to evolve radically. It's really a matter of scale. As stablecoin's share of M2 grows, companies like Circle will do more business. Last time, I discussed research by Citigroup ( C ), supposing that the stablecoin market could grow to $500B to $3.7T by 2030. I opined the following: Q1 2025 showed net income of about $64.8M, for about $78.7M in earnings if we add back depreciation and amortization. Annualized, that's about $314.8M in earnings. If the Stablecoin market reaches $1T, ceteris paribus, Circle should be earning $1.26B on the 4X alone. Let's assume operating leverage gives them better margins at scale, for about $1.5B. Making a similar adjustment for the six months ended June, as well as the one-off expenses from the IPO that I mentioned, these adjusted earnings are $240.7M, which annualize to $481.5M. This is quite a bit higher, demonstrating the clear operating leverage of the business. 4X the volume from the secular movement of stablecoin could easily grow earnings much more than 4X. It's easier to see a range of $2B to $3B in 2030 earnings with constant interest rates. Quarterly Interest Rates (Q2 2025 Form 10Q) For many quarters now, the short-term rates that their dollar reserves earn have been in decline. The Federal Reserve also finally issued a cut this September, so this is likely to continue. Lacking another way to make revenue, this will simply reduce earnings. Even if short-term rates don't return to zero, something like 2% could bring the range down between $1B and $1.5B. That could lower the valuation over time as well. As the market cap is currently about $29B, that isn't an awful price. It's a lot better than what we got at the beginning of July, and with my revised outlook on potential earnings growth, I think an entry price below $95 is no longer necessary. An entry below $120 seems adequate going forward, slightly less than the current price. Conclusion While the Fed's first rate cut in 2025 might not be particularly welcome for this stock, the growth of stablecoins and Circle's key role in it will largely outweigh cuts in the meantime. I feel more confident about what could be considered a good entry price for this business, and that's why I've bumped it up. As the stock still trades above that, I maintain my Hold rating for now.
