Circle: High Risk, High Reward On The Disruption Of Cash

Summary Circle has seen strong network growth and a robust business model centered on the USDC ￰0￱ benefits from its partnership with Coinbase and earns revenue primarily from interest on US dollar reserves backing ￰1￱ high variable costs and volatility, the company's projected 40% annual growth and potential for operating leverage make its valuation reasonable. I am initiating coverage with a buy ￰2￱ Internet Group ( CRCL ) has been one of many tech IPO winners this ￰3￱ may be wondering if now is a good time to buy, given the stock still trades at a big premium to its IPO price tag. I am of the view that the answer leans positively, as the company's business model appears to suggest a growing pot of gold as the network grows.

I caution that the stock is likely to trade with great volatility even after the expiration of the IPO lockup period. I am initiating coverage with a buy ￰4￱ Stock Price CRCL went public in June at $31 per ￰5￱ after a fall from the highs, the stock still trades at multiples of that ￰6￱ by YCharts CRCL Stock Key Metrics CRCL owns the stablecoin network behind ￰7￱ is pegged to the US dollar and thus is meant to have stable ￰8￱ is the second-largest stablecoin in the ￰9￱ had a $61 billion market cap as of the second quarter, but as of recently that market cap has already jumped to nearly $74 billion. 2025 Q2 Presentation Stablecoins have come into the limelight, especially after the passage of the GENIUS act. 2025 Q2 Presentation Stablecoins appear to still be in the early innings, but there have already been rising use cases, perhaps the most notable being Coinbase ( COIN ) introducing a stablecoin- backed payment stack for use on Shopify ( SHOP ).

COIN is a key partner for CRCL and has been instrumental in helping it get to the critical mass where it is now. 2025 Q2 Presentation CRCL primarily earns revenue from the interest earned on the US dollars backing ￰10￱ latest quarter saw the company post 53% YoY revenue growth to $658 million, which was roughly equivalent to the 4.3% yield of short-term US Treasuries. However, revenue less distribution costs ('RLTC' and the closest corollary to gross profits for the company) was only 38%, as the company has significant variable costs, with the most important being revenue sharing with COIN. 2025 Q2 Presentation CRCL is generating positive adjusted EBITDA, and I expect it to generate robust GAAP margins over the long term, given the company would not need to ramp up fixed costs as the network grows.

I view the company as sort of acting like a "tax" on their digital currency, similar to the federal government. 2025 Q2 Presentation Management has given guidance for around 40% annual growth in USDC. 2025 Q2 Presentation I expect the company to see rapid but uneven growth, as growing adoption of USDC may need more time for fleshed-out use ￰11￱ CRCL Stock a Buy, Sell, or Hold? As of recent prices, CRCL traded hands at around 11x ￰12￱ first glance, that might seem like an outright steal given the projected 40% growth ￰13￱ Alpha However we mustn't forget the high variable ￰14￱ accounting for the low gross margins, CRCL trades for around 29x gross ￰15￱ at this higher multiple, the valuation looks reasonable if the company really can sustain 40% growth, with the stock trading at around 15x 2027 gross profits.

I can see the company sustaining 50% net margins (based on gross profits) over the long term, placing the valuation at around 30x 2027e long-term earnings. Again, that assumption is based on the company being able to simply earn interest revenues on the reserves backing the network without seemingly having any obligation to increase fixed expenses in ￰16￱ could make an argument that CRCL deserves to trade at premium valuations over the long term due to it being able to simply earn interest revenues that grow in line with the size of the ￰17￱ one might believe that stablecoins like USDC may be to the US dollar what streaming is to watching ￰18￱ offer the promise of faster and cheaper ￰19￱ in crypto are undoubtedly familiar with the bullish thesis for Bitcoin ( BTC-USD ) regarding the potential upside if 1% of all corporate cash was invested in the digital asset.

I note that I can see a similar argument being made for stablecoins given the aforementioned technological superiority to ordinary cash. I find the stock buyable at these levels but expect significant volatility as investors may be uneasy about the high valuations given potentially low conviction in the consistency of forward growth ￰20￱ Stock Risks It is admittedly difficult to attempt to explain why USDC would be the stablecoin winner of the ￰21￱ could envision a world in which every company has their own stablecoin to handle their specific day-to-day financial transactions (but perhaps a pushback would be the technological difficulty in implementing it).

CRCL is quite exposed to interest rates and, ironically, may be a victim in the event of falling rates due to lower revenue earned on the ￰22￱ is likely to trade with great volatility, especially due to the high valuation and lack of material GAAP ￰23￱ Stock Conclusion It is possible, if not likely, that CRCL trades down sharply lower sometime in the near ￰24￱ said, this looks like the kind of business that can show significant operating leverage as the network ￰25￱ critical question is, of course, why USDC may be the long-term winner. I believe the partnership with COIN is an important catalyst for long-term growth even if the company has to cede a lot of margin in compensation.

I rate the stock a buy but caution on the high-risk profile of the investment thesis.